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Lawyers want $616-million SAC Capital settlement held for investors

March 28, 2013|By Andrew Tangel | This post has been corrected. See the note below for details.
  • Outside SAC Capital Advisors offices in Stamford, Conn.
Outside SAC Capital Advisors offices in Stamford, Conn. (Victor J. Blue / Bloomberg )

NEW YORK -- Attorneys have asked a federal judge to set aside hedge fund SAC Capital Advisors' record $616-million settlement for investors -- and not to transfer the sum to the U.S. Treasury.

Attorneys for plaintiffs in a separate case have asked that the Securities and Exchange Commission set aside the massive sum in a so-called Fair Fund for investors.

When the SEC collects civil penalties, the agency generally either sets aside the money to compensate defrauded investors or transfers the money to the U.S. Treasury. (The SEC's budget is funded by Congress, not by penalties it collects.)

In a letter filed in court, plaintiff's attorneys Ethan Wohl and Marc Gross said "it would constitute an abuse of discretion for the SEC not to establish a Fair Fund." They noted this would be the largest-ever insider-trading settlement for the SEC, and that the agency has often established such funds in cases involving "much smaller recoveries."

A federal judge was to consider the request, along with the fund's proposed settlement, at a hearing Thursday morning in Manhattan. Bloomberg News reported the judge made no ruling on the settlement, however. Bloomberg reported that the judge took issue with a provision of the settlement that allows SAC to avoid admitting wrongdoing.

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The SEC announced its $616-million settlement with SAC Capital two weeks ago. Two of the fund's affiliates, CR Intrinsic Investors and Sigma Capital Management, were accused by the SEC of illegally trading on secret information unavailable to the investing public.

Nearly all of the settlement involves CR Intrinsic's trades in Elan and Wyeth stock. The companies had been developing a drug to treat Alzheimer's disease, and the drug was undergoing a governmental evaluation process.

Federal prosecutors in Manhattan last year filed criminal insider-trading charges against Mathew Martoma, a former portfolio manager at CR Intrinsic. Martoma has pleaded not guilty and his lawyer has declared his client "an innocent man."

The cases involving SAC Capital have fueled speculation that the firm's founder, Steven A. Cohen, may ultimately be the government's target. Cohen has not been accused of any wrongdoing.

The secretive billionaire has reportedly been on a recent spending spree.

Cohen has agreed to pay $60 million for a 10,000-square-foot oceanfront mansion in the Hamptons, according to Bloomberg. Cohen is also trying to sell a Manhattan apartment for a record $115 million, the news service reported.

The real estate purchase comes after Cohen reportedly bought, for $155 million, Picasso's "Le Reve" from casino mogul Steve Wynn. Bloomberg said the price tag was the highest ever paid by a U.S. art collector.

The art sale was previously reported by the New York Post and Bloomberg News. A spokesman for Cohen declined to comment, and a Wynn representative did not respond to a request for comment.

[For the record, 9:45 a.m. March 28: An earlier version of this post reported that lawyers for SAC Capital had requested that the $616-million settlement in the insider-trading case be placed in a Fair Fund. The lawyers represent plaintiffs in a separate class-action case against SAC Capital.]


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