A U.S. investigation of possible insider trading at SAC Capital Advisors LP, the $14 billion hedge fund run by Steven A. Cohen, is linked to a 2010 regulatory lawsuit over allegedly illegal trades in InterMune Inc. (ITMN), according to a person with knowledge of the matter.
The Federal Bureau of Investigation and the Securities and Exchange Commission’s probe of trades that SAC Capital made in the Brisbane, California-based biopharmaceutical company is tied to a December 2010 SEC lawsuit against an investor, said the person, who asked not to be named because the matter isn’t public. The investor bought InterMune options before a European Union regulatory panel urged approval of the company’s drug Esbriet to treat a fatal lung disease, the person said, declining to elaborate.
News of the probe into SAC Capital’s trading in stocks including InterMune and Weight Watchers International Inc. (WTW) came after Mathew Martoma, a former portfolio manager at the hedge fund, was charged Nov. 20 with insider trading in two other stocks. SAC Capital told clients Nov. 28 that it had received a so-called Wells notice from the SEC saying investigators may pursue an enforcement action against the firm for fraud and liability related to the unit that employed Martoma, another person familiar with the matter said.
The probe of InterMune trading at Cohen’s firm focuses on the first half of 2010, a person with knowledge of the matter said last week. InterMune’s stock soared early that March after the drugmaker’s experimental medicine was reviewed more favorably by U.S. regulators than analysts had expected.
SAC, including positions held by affiliates CR Intrinsic and Sigma Capital Management, bought more than 4 million shares of InterMune in the first quarter of 2010 to increase its holding to almost 4.5 million from none in the prior two quarters, according to data compiled by Bloomberg.
Two months after InterMune’s jump, the stock slumped after the company’s application for the potential $1 billion-a-year lung treatment was rejected by regulators. By the end of the second quarter, SAC held 10,983 shares, according to the data.
Some of the InterMune transactions were handled by Nikej Shah, the second person said. Shah, a former SAC portfolio manager who hasn’t been accused of any wrongdoing, declined to comment on the probe.
Jonathan Gasthalter, a spokesman for Stamford, Connecticut-based SAC Capital, has said the firm wasn’t aware of any investigation involving trades of InterMune or Weight Watchers. He previously declined to comment on whether the Wells notice cited the two companies. He declined to comment yesterday.
The SEC brought the earlier case on Dec. 23, 2010, against then-unknown investors of InterMune stock options. Six days earlier, InterMune stock more than doubled and its options rose by five times after a European Union regulatory committee urged approval of Esbriet.
The SEC’s lawsuit focused on two transactions: one for the purchase of 400 InterMune call options, or bets that the shares would rise, and one for 237 of the contracts. After filing its suit, the agency immediately won an order freezing assets held in U.S. brokerage accounts.
Months later, Swiss citizen Michael Sarkesian and a British Virgin Islands-based investment vehicle he managed filed court papers indicating they traded the 400 options and denied doing so on inside information. The SEC claimed Sarkesian had been tipped on Dec. 5, 2010, to the news about the forthcoming positive opinion for Esbriet by a “source” who stood to gain some “personal benefit.”
Neither the source nor the benefit was specified in the SEC’s complaint.
On March 29, Sarkesian and the investment vehicle he managed, Quorne Ltd., agreed to settle the case without admitting wrongdoing. They agreed to forfeit $616,000 in profits and pay a $93,806 fine.
The SEC had earlier dropped allegations over the separate purchase of 237 options after the purchaser cooperated with the agency’s enforcement staff, according to records in federal court in Manhattan.
Michael Dailey, a lawyer for Sarkesian and Quorne, didn’t return a call yesterday seeking comment on the case. He previously declined to comment on the lawsuit.
In a separate case, a U.K. man, Taiyyib Ali Munir, pleaded guilty in federal court in Brooklyn, New York, on Oct. 15 to conspiring in an insider-trading scheme involving InterMune, Global Industries Ltd. and Tyco International Ltd. (TYC) Munir, who lives in London and worked in the financial industry, admitted that he agreed to obtain and sell confidential earnings reports of public companies from December 2011 to July 2012.
Munir, who has yet to be sentenced, had told a government informant that illegal tips he got could be traced by to an ex-New York Stock Exchange director, according to court papers.
The case is SEC v. One or More Unknown Purchasers of Options of InterMune, 10-cv-9560, U.S. District Court, Southern District of New York (Manhattan).