Business Litigation, Fraud, Securities Litigation, The Corporate World - Wednesday, May 1, 2013 16:45 - 0 Comments

Judge Conditions $602 Million SAC Settlement On Appeals Court Decision

District Judge Victor Marrero in Manhattan has signed off on a $602 million insider-trading settlement between a unit of SAC Capital Advisors and U.S. securities regulators. But the judge said final approval rests on the outcome of another high-profile case now on appeal. Judge Marrero called the settlement amount “significant and proportional to the sums allegedly at issue.” However, the judge conditioned his approval on the impending ruling by a federal appeals court in the case we have discussed involving Citigroup Inc. In that case, a judge rejected Citigroup’s $285 million settlement with the U.S. Securities and Exchange Commission (SEC) over the bank’s mortgage-linked securities dealings, taking issue with the agency’s longstanding policy of allowing defendants to neither admit nor deny allegations as part of a settlement.

Like the Citigroup case, the SAC settlement did not require the hedge fund run by money manager Steven A. Cohen to admit or deny the regulator’s insider-trading allegations. The settlement would resolve SEC civil charges against SAC subsidiary CR Intrinsic. Judge Marrero wrote in a 34-page opinion that it was “incongruous” for the hedge fund to admit no wrongdoing while agreeing to such a high settlement when it would cost “a fraction of that amount,” about $1 million, to litigate.

The 2nd U.S. Circuit Court of Appeals is expected to soon issue an opinion in the Citigroup case. The appeal stems from the 2011 rejection of the bank’s settlement with the SEC by Judge Marrero’s colleague, U.S. District Judge Jed Rakoff. In that case Judge Rakoff has contended that public interest is not served by settlements in which there is no admission of what happened. I tend to agree with his assessment. But others say that such settlements can often be the only way to get companies to settle fraud cases. That, in my opinion, is a lame excuse.

The CR Intrinsic case relates to the conduct of former portfolio manager Mathew Martoma, who was criminally charged late last year with insider trading in two drug stocks, Elan Corp Plc and Wyeth (now owned by Pfizer Inc.). Another federal judge has already approved a $14 million settlement between the SEC and another SAC Capital unit, Sigma Capital Management.

Judge Marrero wrote that his approval of the CR Intrinsic pact would be final if the appeals court determines that district courts lack the authority to reject such settlements on the basis of reservations about these “neither admit nor deny provisions.” But the judge made it very clear that he would have serious reservations about such deals if the appeals court left him room to do so. He wrote:

Instances can and do arise in which courts should properly raise the level of scrutiny they accord to particular settlement agreements in particular situations.

The hedge fund, based in Stamford, Conn., previously has called the agreements “a substantial step” toward resolving all outstanding regulatory matters. The case is SEC v. CR Intrinsic Investors, which is in the U.S. District Court, Southern District of New York.

Source: Yahoo News