After resolving two federal insider trading inquiries that culminated in payments of more than $615 million, SAC Capital Advisors L.P. representatives say the Stamford hedge fund firm can now “move forward with confidence.”
The U.S. Securities and Exchange Commission (SEC) announced March 15 that it had reached a $602 million settlement with CR Intrinsic Investors over charges that it participated in an insider trading scheme, and that it had reached a $14 million settlement with Sigma Capital Management over separate insider trading charges.
Both sides were quick to declare victory, with SAC Capital spokesman Jonathan Gasthalter saying the settlements are “a substantial step toward resolving all outstanding regulatory matters and (allowing) the firm to move forward with confidence.”
Regulators touted the “historic monetary sanctions” against CR Intrinsic, with the $602 million settlement the largest ever in an insider trading case, according to the SEC.
Observers, however, were quick to point out that neither CR Intrinsic nor Sigma Capital ”” both of which are funds affiliated with SAC Capital ”” admitted guilt as part of the settlements.
Moreover, they say, the fines represent a bump in the road for SAC Capital, with more than $14 billion in assets under management, and founder Steven A. Cohen, a Greenwich resident whose net worth is more than $8 billion.
Tim Shearin of Pullman & Comley L.L.C., a law firm with offices in Stamford, Bridgeport, Hartford, Waterbury and White Plains, N.Y., said the SEC and SAC Capital can both take away positives from the settlements.
“To most of us, $600 million is an incredible sum of money and signifies a profound and meaningful undertaking by the SEC,” said Shearin, who chairs the firm”™s litigation department. “There are those who work in the hedge fund market and know SAC Capital who think it”™s an insubstantial amount of money and a blip on the radar screen.”
On the flip side, Shearin said, “I think the more important part here is that for years and years ”” particularly in the wake of the economic crisis of 2007 ”” people have been clamoring for government regulation of the hedge fund industry. As much as anything, this represents a step in that direction by the SEC ”” a willingness to tackle something they had not heretofore tackled.”
As the settlements were announced, George S. Canellos, acting director of the SEC”™s division of enforcement, described them as sharp warnings “that the SEC will hold hedge fund advisory firms and their funds accountable when employees break the law to benefit the firm.”
The charges against CR Intrinsic, Mathew Martoma, a former portfolio manager for the firm, and Sidney Gilman, an independent medical consultant, were filed last November.
In its claim, the SEC alleged Gilman provided Martoma with nonpublic information relating to an Alzheimer”™s drug trial being conducted by Elan Corp. and Wyeth. The SEC also claimed the knowledge allowed CR Intrinsic to avoid $194 million in losses and to instead collect about $82 million in profits.
The Sigma Capital settlement came in a case that began about a year ago with charges by the SEC against several hedge fund managers and analysts over trades involving Dell and Nvidia Corp. Former Sigma Capital analyst Jon Horvath was among those charged, and agreed to a settlement earlier this month in which he admitted liability.
While CR Intrinsic and Sigma Capital did not admit or deny the charges as part of the settlements, the SEC said federal prosecutors will continue their case against Martoma, who is being tried in U.S. District Court for the Southern District of New York.
“We are happy to put the Elan and Dell matters with the SEC behind us,” Gasthalter said. “We are committed to continuing to maintain a first-rate compliance effort woven into the fabric of the firm.”
Gasthalter also reiterated that Cohen has not been charged with any wrongdoing and has not violated any laws.
