Two affiliates of S.A.C. Capital Advisors — CR Intrinsic Investors and Sigma Capital — will pay $614 million to settle insider trading charges brought by the Securities and Exchange Commission (SEC).
The firms were represented by Martin Klotz of Willkie Farr & Gallagher in New York.
CR Intrinsic Investors will pay more than $600 million to settle SEC charges that it participated in an insider trading scheme involving a clinical trial for an Alzheimer’s drug being jointly developed by two pharmaceutical companies.
The settlement requires CR Intrinsic CR Intrinsic to pay more than $600 million – $274,972,541 in disgorgement, $51,802,381.22 in prejudgment interest, and a $274,972,541 penalty.
The SEC charged CR Intrinsic with insider trading in November 2012, alleging that one of the firm’s portfolio managers — Mathew Martoma — illegally obtained confidential details about the clinical trial from Dr. Sidney Gilman, who was selected by the pharmaceutical companies – Elan Corporation and Wyeth – to present the final drug trial results to the public.
The SEC’s complaint against CR Intrinsic, Martoma, and Dr. Gilman alleged that during phone calls arranged by a New York-based expert network firm for which Dr. Gilman moonlighted as a medical consultant, he tipped Martoma with safety data and eventually details about negative results in the trial about two weeks before they were made public in July 2008. Martoma and CR Intrinsic then caused several hedge funds to sell more than $960 million in Elan and Wyeth securities in a little more than a week.
In an amended complaint filed today, the SEC added S.A.C. Capital Advisors and four hedge funds managed by CR Intrinsic and S.A.C. Capital as relief defendants because they each received ill-gotten gains from the insider trading scheme.
These ill-gotten gains are comprised of profits and avoided losses resulting from trades placed in the hedge fund portfolios that CR Intrinsic and S.A.C. Capital managed, and include fees that S.A.C. Capital received as a result of these ill-gotten gains.
The settlement does not resolve the charges against Martoma, whose case continues in litigation. The court previously entered a consent judgment against Dr. Gilman requiring him to pay disgorgement and prejudgment interest, and permanently enjoining him from further violations of the anti-fraud provisions of the federal securities laws.
Sigma Capital Management will pay nearly $14 million to settle charges that the firm engaged in insider trading based on nonpublic information obtained through one of its analysts about the quarterly earnings of Dell and Nvidia Corporation.
The SEC’s case, borne out of its ongoing investigation into expert networks and the trading activities of hedge funds, began last year with charges against several hedge fund managers and analysts including Jon Horvath, a former analyst at Sigma Capital.
Horvath agreed to a settlement earlier this month in which he admitted liability.
The SEC additionally charged Sigma Capital in the insider trading scheme and named two affiliated hedge funds – Sigma Capital Associates and S.A.C. Select Fund – as relief defendants that unjustly benefited from Sigma Capital’s violations. S.A.C. Select Fund is an affiliate of S.A.C. Capital.
The SEC’s complaint alleges that Horvath provided Sigma Capital portfolio managers with nonpublic details about quarterly earnings at Dell and Nvidia after he learned them through a group of hedge fund analysts with whom he regularly communicated. Based on the confidential information, Sigma Capital traded Dell and Nvidia securities in advance of earnings announcements in 2008 and 2009 for $6.425 million in gains for its hedge fund affiliates.
Sigma Capital agreed to pay disgorgement of $6.425 million plus prejudgment interest of $1,094,161.92 and a penalty of $6.425 million.
Both firms neither admitted nor denied the charges.