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SAC Owes $549 Million for Elan Trades, Investors Say

SAC Capital Advisors LP, the hedge fund company founded by Steven A. Cohen, owes Elan Corp. shareholders at least $685.6 million as a result of alleged insider trades in the drugmaker’s stock, investors said in a lawsuit.

The Elan shareholders’ claim came in a consolidated complaint filed May 13 in Manhattan federal court against Stamford, Connecticut-based SAC and Cohen. The suit stems from federal criminal charges against Mathew Martoma, a former SAC Capital portfolio manager accused of using inside information to help SAC make $276 million on shares of Elan and Wyeth LLC. Martoma has denied the charges.

Prosecutors yesterday said they plan to disclose Martoma’s co-conspirators in the alleged insider trading scheme, which they called the biggest ever, by July 31. The government said Martoma shared inside tips on a drug trial with Cohen, who hasn’t been charged in the matter and has denied any wrongdoing.

The shareholder lawsuit was filed by investors who bought American depositary receipts of Dublin-based Elan or traded in options from July 1, 2006, to July 18, 2008, and July 21, 2008, to July 29, 2008. It names as defendants SAC, Cohen, Martoma and Sidney Gilman, the doctor who allegedly passed the drug-trial information.

SEC Settlement

The suit seeks $549.2 million in profits gained and losses avoided plus $396 million in prejudgment interest. The amount in damages is offset by $259.7 million SAC agreed to disgorge as part of a record $602 million March settlement with the U.S. Securities and Exchange Commission, according to the complaint. Under the settlement, SAC didn’t admit fault.

The total minimum net amount owed to Elan shareholders is $685.6 million, according to the complaint.

Jonathan Gasthalter, a spokesman for SAC, declined to comment on the new filing.

SAC has argued that its SEC settlement means the Elan shareholders aren’t entitled to any money for the alleged insider trading.

SAC has also been sued by shareholders of Wyeth, now a unit of Pfizer Inc.

SEC Settlement

Last month, U.S. District Judge Victor Marrero, who is overseeing the Elan shareholder case, conditionally approved SAC’s settlement with the SEC. Marrero ruled April 15 that the settlement can go forward, while saying it remains subject to a ruling by the U.S. Circuit Court of Appeals in New York in a case involving an earlier SEC settlement with Citigroup Inc.

The Elan investors claimed Cohen created a “permissive culture” that encouraged insider trading at SAC. Since 2009, 11 current or former SAC employees have been charged criminally, sued by the government or named as uncharged co-conspirators, according to the plaintiffs.

The Elan shareholders are represented by the New York law firms Wohl & Fruchter LLP and Pomerantz Grossman Hufford Dahlstrom & Gross LLP.

The case is Kaplan v. SAC Capital, 12-cv-09350, U.S. District Court, Southern District of New York (Manhattan).

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