Elan Corp. shareholders who sued SAC Capital Advisors LP and founder Steven A. Cohen for insider trading asked the judge presiding over the hedge fund’s criminal case to reject any accord SAC has reached with prosecutors unless it pleads guilty to the conduct alleged in their case.
Investors in Elan and Wyeth told U.S. District Judge Laura Taylor Swain today that they are “crime victims” of the alleged fraud perpetrated by Stamford, Connecticut-based SAC. If a plea bargain is reached that doesn’t include the fund’s admitting wrongdoing for insider trading in Elan and Wyeth, it should be rejected, they argued in a letter to the court.
SAC and Cohen have been told that $1.8 billion and admission of wrongdoing by the fund would be the price of resolving the insider-trading charges, people familiar with the matter said.
The amount would be about $1.2 billion paid as a result of a criminal probe by Manhattan U.S. Attorney Preet Bharara and includes the more than $600 million that Cohen has already agreed to pay the U.S. Securities and Exchange Commission to settle a related suit.
“According to published news reports, a plea agreement could be executed by defendants and the government and submitted to the court as soon as today,” Ethan Wohl, a lawyer for the plaintiffs, said in the letter.
“The plea being negotiated will allow defendants to plead guilty and pay a fine in excess of $1 billion without admitting liability for insider trading in Elan or Wyeth. A plea agreement on those terms, if tendered to the court, should be rejected.”
Prosecutors have charged Mathew Martoma, a former SAC money manager, with using illegal tips about an Alzheimer’s drug trial to help the firm make profits or avoid losses totaling $276 million by trading in Elan and Wyeth, in a case the U.S. called the largest insider-trading scheme in history. Martoma pleaded not guilty and is scheduled to go to trial in January.
SAC was indicted in July, accused of operating a conspiracy that stretched as far back as 1999, including trades by Martoma, and reaped hundreds of millions of dollars in illicit profit.
The lawyer said a federal court can reject a plea agreement if it determines that, if any charges are to be dismissed as part of an agreement, the ones remaining reflect “the seriousness of the actual offense behavior.”
While Cohen wasn’t charged in either case, Wohl noted that the SEC has said that he “personally received and benefited” from inside information on trades with Martoma.
Jonathan Gasthalter, a spokesman for SAC with Sard Verbinnen & Co., declined to comment on the investor letter.
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.
The case is Kaplan v. SAC Capital, 12-cv-09350, U.S. District Court, Southern District of New York (Manhattan).