Government officials had high hopes that Mathew Martoma, the latest former executive from SAC Capital to be implicated in the government’s burgeoning investigation of insider trading, could provide evidence that would finally implicate the probe’s ultimate target: Steve Cohen, the fund company’s billionaire founder.

But people close to the investigation say Martoma has refused past attempts to provide evidence against his old boss and at least for now shows no signs of giving into to the government’s demands. And they say Martoma has a powerful incentive not to cooperate because SAC, which hasn’t employed him for about two years, is now paying for his high-profile, and highly paid attorney, Charles Stillman.

Stillman, a long-time white-collar lawyer, declined to comment about whether any payment arrangement exists with SAC; SAC’s spokesman Jonathan Gasthalter also declined to comment.

People who know Stillman say his fees aren’t cheap -- his rate is as much as $1,300 a hour, they say. And while it is not unusual for companies to pay the legal defense of executives ensnared in criminal and civil probes based on standard employment contracts, legal experts say the practice always prompts the question of whether the firm is really paying for silence.  

“Drug gangs will typically pay the legal fees of members who are arrested as an incentive not to flip,” said Peter Henning, a law professor at Wayne State University and an expert in white-collar crime. “Corporations obviously have to be careful not to make explicit agreements, but there is always that suspicion.”

But it’s unclear if the legal-fee arrangement is part of Martoma’s employment contract, or part of some other recently crafted deal with SAC. Martoma hasn’t worked at SAC since 2010, when he was fired for poor performance. He earned $9.4 million in 2008, a bonus prosecutors say was based on using inside information on trades.

Martoma faces more than 20 years in jail for trading on inside information in drug stocks. The potential of such large jail terms have caused other targets of the government’s wide-ranging probe into insider trading to cooperate, helping Justice Department build cases against several prominent hedge fund managers including former Galleon Group chief Raj Rajaratnam, who is serving an 11-year sentence in a federal prison.

People close to Martoma say he has no plans to cooperate, though legal experts say his attorneys cannot rule it out given the lengthy jail sentence he faces. But that doesn’t mean SAC will not benefit from having a continued relationship with Martoma. “I wouldn’t be surprised if there is a joint defense agreement or at least some agreement to share information,” Henning said. “At the very least SAC could get a heads up on when and what he plans to cooperate on.”

Late last month Martoma was charged by the Manhattan U.S. Attorney’s office in what prosecutors described as possibly the most profitable insider trading case at least in recent history. He allegedly paid a doctor to provide him with inside information on a new drug, resulting in more than $270 million in a combination of profits and avoided losses in the shares of drug makers Elan and Wyeth back in 2008.

But Martoma isn’t the probe’s ultimate target, according to people with direct knowledge of the matter. He shared the information about the drug with Cohen, who wasn’t referred to by name in the complaint but figured prominently in the trades, these people say. During this time, SAC made trades in shares of Elan and Wyeth stock that both made the company money or avoided losses.

Both Martoma, through Stillman, and Cohen, through an SAC spokesman, deny wrongdoing and have declined further comment. A spokeswoman for the Manhattan U.S. Attorney’s office had no comment.

The complaint doesn’t allege that Cohen knew the information given to him by Martoma was illegal inside information. But prosecutors have made no secret that they want Martoma to cooperate in their pursuit of Cohen, who they believe runs a hedge fund that feasts off inside tips, people with knowledge of the probe say.

Federal prosecutors have had a long-running interest in building a case against the SAC founder, and his $14 billion hedge fund. The FOX Business Network was first to report that several years back, the FBI wiretapped Cohen’s home telephone based on suspicions that he used inside information to profitably trade stock. The wiretap provided little if any evidence implicating Cohen, who hasn’t been charged with either civil or criminal insider trading violations.

The SEC’s enforcement staff has recommended to the full commission that it file civil charges against SAC for possible insider trading violations, and also possibly failure to monitor those who have. Including Martoma, as many as seven former SAC traders have been implicated in the government’s insider trading crackdown.

“The government believes Steve Cohen produces above market returns in his hedge fund because he trades on inside information,” said one attorney directly involved in the probe. “It’s as simple as that.”

Since 1996, SAC has cranked out returns after fees and expenses of more than 25%; by contrast Warren Buffett’s Berkshire Hathaway has produced returns a little more than 8.5%. The Standard & Poor’s 500 index rose a little more than 5% during that time.

Charles Gasparino joined FOX Business Network (FBN) in February 2010 as Senior Correspondent.