SAC Settles Insider-Trading Charges For $614 Million

Mar 15 2013 | 3:05pm ET

SAC Capital Advisors has agreed to pay more than $600 million to settle insider-trading charges.

Two SAC affiliates, CR Intrinsic Investors and Sigma Capital Management, have settled with the Securities and Exchange Commission for $614 million, the largest-ever settlement for insider-trading. The overwhelming bulk of the money will come from CR Instrinsic, which agreed to pay nearly $275 million each in disgorgement and penalties, and $51.8 million in prejudgment interest.

The SEC had accused SAC of trading on confidential information about Alzheimer's drug trials and technology stocks. The CR settlement covers the allegedly illegal trading at the heart of the criminal case against former portfolio manager Mathew Martoma, who has been criminally charged with insider-trading, and the Sigma settlement trades based on tips received by former analyst Jon Horvath, who pleaded guilty in a separate insider-trading case. Neither unit admitted or denied any wrongdoing.

“The historic monetary sanctions against CR Intrinsic and its affiliates are sharp warning that the SEC will hold hedge fund advisory firms and their funds accountable when employees break the law to benefit the firm,” said George Canellos, acting director of the SEC’s enforcement division.

"We are happy to put the Elan and Dell matters with the SEC behind us," SAC spokesman Jonathan Gasthalter said. "This settlement is a substantial step toward resolving all outstanding regulatory matters and allows the firm to move forward with confidence. We are committed to continuing to maintain a first-rate compliance effort woven into the fabric of the firm."

The deal does not necessarily mean the matter is entirely behind SAC, however. Bloomberg News reports that the settlement does not bar a case against firm founder Steven Cohen; both prosecutors and the SEC have been seeking to build such a case for months. Nor does it resolve the SEC's case against Martoma, who has pleaded not guilty and whose legal bills are being footed by SAC.

"SAC’s business decision to settle with the SEC in no way changes the fact that Mathew Martoma is an innocent man," his lawyer, Charles Stillman, said. "We will never give up our fight for his vindication."

Martoma is accused of getting tips about the clinical trials from Sidney Gilman, a doctor overseeing them who is now cooperating with prosecutors. The SEC’s complaint against CR Intrinsic, Martoma, and Gilman alleged that during phone calls arranged by a New York-based expert network firm for which 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.

Prosecutors said Martoma's scheme is the largest insider-trading scam in history.

The settlement still requires the approval of a federal judge.

In Depth

Q&A: Brevan Howard’s Charlotte Valeur Talks Strategy

Sep 18 2014 | 11:18am ET

Charlotte Valeur chairs the board of Brevan Howard Credit Catalysts, an LSE listed...


Griffin Donates $1M To Rauner's Illinois Gov. Campaign

Sep 22 2014 | 9:29am ET

Hedge fund billionaire Kenneth Griffin definitely has a dog in this fight. The Citadel...

Guest Contributor

Top 5 Predicted Outcomes Of CalPERS' Hedge Fund Divestment

Sep 22 2014 | 8:35am ET

CalPERS’ announcement to divest of hedge funds has created a significant buzz...



Editor's Note

    Get A Sneak Peak Of The Alpha Pages

    Aug 25 2014 | 11:21am ET

    As many of you know, FINalternatives was recently acquired by the owners of Futures magazine, a firm called The Alpha Pages LLC. Today marks the soft-launch of a new sister site for both publications. As its name suggests, The Alpha Pages will cover all types of alternative investments, going far beyond the more well-known ones such as hedge funds and private equity. Read more…


Futures Magazine

September 2014 Cover

The London Whale: Rogue risk management

Credit default swaps brought down the London Whale and cost JPMorgan $6.2 billion. Here is how it happened.

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.