SAC’s Record $602 Million SEC Settlement ApprovedBob Van Voris
SAC Capital Advisors LP’s record $602 million insider trading settlement with the U.S. Securities and Exchange Commission was approved by a federal judge, who conditioned his ruling on a future appeals court decision in an SEC settlement with Citigroup Inc.
U.S. District Judge Victor Marrero in Manhattan approved the settlement, while saying it remains subject to a ruling by the U.S. Court of Appeals in New York in the Citigroup case on whether defendants in SEC cases may be permitted to neither admit nor deny fault in such agreements.
Marrero expressed concern about such a provision in the SAC settlement at a hearing on March 28. In the ruling, which was dated yesterday and made public today, Marrero expressed skepticism about the decision to let Stamford, Connecticut-based SAC escape an admission of liability.
“It is both counterintuitive and incongruous for defendants in this SEC enforcement action to agree to settle a case for over $600 million that would cost a fraction of that amount, say $1 million, to litigate, while simultaneously declining to admit the allegations,” Marrero said.
In the Citigroup case, U.S. District Judge Jed Rakoff in Manhattan criticized the SEC’s policy of allowing defendants to resolve the agency’s allegations without admitting wrongdoing, ruling that Citigroup’s $285 million SEC settlement couldn’t go forward because the deal wasn’t in the public interest. The appeals court heard arguments in the case in February. The court hasn’t said when it will rule.
“The court cannot conceive that Congress intended the judiciary’s function in passing upon these settlements as illusory, as a predetermined rubber stamp for any settlement put before it by an administrative agency, or even a prosecutor,” Marrero said in the opinion.
The settlement conditionally approved by Marrero would resolve SEC claims that SAC and its CR Intrinsic Investors LLC unit profited from illegal tips about an Alzheimer’s drug received by a former portfolio manager, Mathew Martoma. It’s the SEC’s biggest settlement of insider trading charges.
Prosecutors claim Martoma shared the inside tips on the drug with SAC founder Steven A. Cohen, helping SAC make $276 million in illegal profit and in losses avoided on shares of Elan Corp. and Wyeth LLC. Cohen, who hasn’t been charged or sued, has denied any wrongdoing. Martoma has pleaded not guilty.
Jonathan Gasthalter, an SAC spokesman at Sard Verbinnen & Co., declined to comment on Marrero’s ruling.
Marrero said the appeals court may rule that lower courts must scrutinize “neither admit nor deny” provisions and set standards for doing so. In that case, an unconditional approval of the SAC settlement would be premature, he said.
On March 28, U.S. District Judge Harold Baer approved a $14 million settlement between SAC’s Sigma Capital unit and the SEC without holding a hearing on the matter. The Sigma settlement stems from a case involving Jon Horvath, a former SAC technology analyst who pleaded guilty to passing nonpublic information to his portfolio manager. The SEC alleged that Horvath’s tips earned the fund more than $6.4 million in profit and avoided losses.
Provisions allowing defendants to neither admit nor deny SEC allegations have been a sticking point for Rakoff on more than one occasion. The SEC has defended the practice, saying it encourages settlements and allows defendants to avoid public admissions that would then be used against them in private litigation.
In a policy change last year, the SEC limited the “neither admit nor deny” language to settlements with defendants who have not already been convicted of the conduct in related criminal cases.
In a separate ruling yesterday, Marrero appointed the law firms Wohl & Fruchter LLP and Pomerantz Grossman Hufford Dahlstrom & Gross LLP as co-lead counsel for Elan investors suing SAC over the trades on Martoma’s alleged inside information.
The SEC case is Securities and Exchange Commission v. CR Intrinsic Investors LLC, 12-cv-08466, U.S. District Court, Southern District of New York (Manhattan); the suit by Elan shareholders is Kaplan v. SAC Capital Advisors, 12-cv-09350, U.S. District Court, Southern District of New York (Manhattan).