Judge Approves SAC Capital's Big Settlement, With a Condition

Martoma, a former portfolio manager at a unit of SAC Capital Advisors, exiting federal court in New York in January Photograph by Peter Foley/Bloomberg

SAC Capital’s attempt to resolve one of the legal problems hanging over the firm was resolved when U.S. District Judge Victor Marrero approved the firm’s record-breaking $602 million settlement with the U.S. Securities and Exchange Commission—with conditions. And in issuing a 34-page order explaining his position, the judge also revealed to the world that there may well be a poet on the bench.

“It should come as no surprise that judges called upon routinely to resolve cases of the domestic ‘cats and dogs’ variety would take special note when the elephant is first dragged into the courtroom,” Marrero wrote in the order, dated April 15. He was referring to a standard provision in which SAC would “neither admit nor deny” culpability as part of the settlement of the SEC’s claims regarding the actions of former SAC portfolio manager Mathew Martoma, who was charged in November with illegal trading in two drug stocks. Martoma has pleaded not guilty.

During a March 28 hearing, Marrero made clear that the no-admit, no-deny provision was giving him pause, especially in the face of the enormous penalty being extracted by the SEC and the fact that the illegal trading alleged in the case is still the focus of ongoing civil and criminal cases. “[H]armful conduct on the scale of the contemporary models ordinarily does not occur absent some form of wrongdoing,” Marrero went on, “the damage the victims suffer cannot always be blamed on acts of God or the mischief of leprechauns.”

In short: Marrero does not believe that the bad behavior alleged in the Martoma case was due to the mischief of leprechauns. For that reason, his approval the settlement is conditioned on the pending appeals court decision in an a separate case that involves the “no admit no deny” provision in an SEC settlement with Citigroup.

In that case, U.S. District Judge Jed Rakoff rejected a settlement between the SEC and Citigroup, saying it was “neither fair, nor reasonable, nor adequate, nor in the public interest” for the bank to sidestep an admission of wrongdoing. A federal appeals court panel is reviewing whether Rakoff’s decision exceeded the limits of judicial authority. The court has not indicated when it might rule on that case.

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