Trial to focus on trades by SAC's Cohen NEW YORK (Reuters) - A trial starting this week over what U.S. prosecutors call the most lucrative insider trading scheme ever will likely delve into the trading activity of Steven A. Cohen, founder of the SAC Capital Advisors hedge fund. Mathew Martoma, a former SAC portfolio manager, is charged with using confidential information provided by two doctors involved in clinical trial to trade in drug companies Elan Corp Plc and Wyeth, which is now owned by Pfizer Inc. The trial is part of a crackdown on insider trading by federal prosecutors in New York. Since October 2009, 78 people have either pleaded guilty or been convicted in an unbroken winning streak for prosecutors at trial. Much of the investigation has centered on improper trading activities at SAC Capital, where eight current or former employees, including Martoma, have been criminally charged. In papers filed in court ahead of his trial, prosecutors charge that in 2008 SAC began selling off a $700 million position in Elan and Wyeth - mostly held in Cohen's own accounts - and placed bets against the companies after Martoma received tips from the doctors. The hedge fund made profits and avoided losses amounting to $276 million, the prosecutors said. Cohen has denied wrongdoing and has not been charged criminally. Martoma, 39, who was arrested at his home in Boca Raton, Florida, in November 2012, has pleaded not guilty and not cooperated with prosecutors. "Mr. Martoma continues to fight these charges and is preparing for trial," his lawyer, Richard Strassberg of Goodwin Procter, said in an email. Jury selection begins on Tuesday and will continue into Wednesday. The trial is expected to run three to four weeks. It will come less than a month after a jury in the same courthouse in New York convicted another SAC portfolio manager, Michael Steinberg, of trading on inside information. SAC Capital agreed to plead guilty in November to fraud charges stemming from insider trading by its employees and agreed to pay $1.2 billion in penalties. The hedge fund has also entered into $616 million in settlements with the U.S. Securities and Exchange Commission to resolve similar claims. The agency is separately seeking to bar Cohen from the financial industry for failing to supervise Martoma and Steinberg. Once a $14 billion fund, SAC Capital is converting itself into a "family office" to manage Cohen's own money. Lawyers for the two doctors, Sidney Gilman and Joel Ross, confirmed last week they would be testifying at the trial. Gilman, a former neurology professor at the University of Michigan, chaired a safety monitoring committee for Elan and Wyeth's clinical trial of Alzheimer's drug bapineuzumab. Ross, 58, who founded Memory Enhancement Center in Eatontown, New Jersey, was a clinical investigator on the drug trial, a role he has played with other Alzheimer's medicines. During the period in question, Martoma, a portfolio manager at SAC Capital's CR Intrinsic Investors, held some 42 consultations with Gilman through an expert networking firm, Gerson Lehrman Group, according to prosecutors. Gilman, 81, earned nearly $108,000 speaking to SAC employees, including Martoma, the SEC said in a parallel lawsuit. Gilman has agreed to pay $234,000 to settle that case. Paid consultations with Ross, meanwhile, came via a firm called HCRC, according to his lawyer, Alexander Novak. Based on confidential information from the drug trial, Martoma began buying shares of Elan and Wyeth and recommended Cohen do the same, according to prosecutors. On July 17, 2008, Gilman told Martoma the final results of the clinical trial, 12 days before they were to be announced publicly. They met in Ann Arbor, Michigan two days later, on a Saturday, to further discuss the trial, according to the indictment. The following Monday, after a call between Martoma and Cohen, SAC began selling off its $700 million position in Elan and Wyeth, prosecutors have said. After the successful trade, Martoma earned a $9.3 million bonus, the indictment said. Martoma's lawyers have indicated that at the trial they will question the doctors' credibility. In meetings with investigators, both doctors at first denied passing inside information to Martoma, but later agreed to cooperate, the defense lawyers said in a pretrial motion. In a decision made public Monday, U.S. District Judge Paul Gardephe ordered the government to disclose to Martoma's legal team any statements made by prosecutors to Gilman or Ross threatening charges or promising not to prosecute in exchange for their testimony. "The defendant is entitled to explore at trial the reasons for the doctors' change of heart," Gardephe wrote. In a related decision, the judge also ordered the government to produce any similar communications between the SEC and lawyers for Gilman and Ross. While Cohen figures heavily in the case, he is not expected to testify because of a broader, ongoing probe into insider trading by prosecutors. As a result, Martoma's lawyers have sought to introduce as evidence transcripts of a deposition by Cohen in May 2012 with the SEC. In the deposition, Cohen told investigators he decided to sell Wyeth securities after talking to Wayne Holman, a former SAC trader who went on to establish his own hedge fund, Ridgeback Capital Management. A lawyer for Holman did not respond to a request for comment. Cohen said he considered Holman "a great healthcare investor" and had agreed to pay him $20 million per year for investment recommendations. The week of the trade, Cohen said Holman told him he was selling his Wyeth shares. A SAC Capital spokesman declined to comment. Gardephe said he would rule later Monday on whether to allow that testimony. The judge also made public several other rulings on pretrial motions. In one, Gardephe said he would not allow prosecutors to introduce testimony that Martoma fainted when FBI agents first approached him outside his home in November 2011 to discuss his insider trading. The judge said it was not reasonable to assume Martoma fainted because he knew he was guilty. "In the life of such a person - someone with no criminal record and no prior involvement with the criminal justice system - such an encounter is a watershed event," Gardephe said. The case is U.S. v. Martoma, U.S. District Court, Southern District of New York, 12-cr-00973. Additional reporting by Emily Flitter; Editing by Eddie Evans, Jeffrey Benkoe and Lisa Von Ahn