SAC Capital’s CR Intrinsic Investors has agreed to pay over $600 million to settle insider trading charges with the Securities and Exchange Commission. The SEC filed the charges back in November. The agency alleged that one of the firm’s portfolio managers, Mathew Martoma, arranged trades of shares of Wyeth Limited (NSE:WYETH) (BOM:500095) and Elan Corporation, plc (NYSE:ELN) based on insider information about a clinical trial he received from Dr. Sidney Gilman, who was chosen to officially release the results of that trial to the public.
According to the SEC, today’s settlement is the biggest one ever in connection with an insider trading case.
In a statement, George S. Canellos, Acting Director of the agency’s Division of Enforcement, said, “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.”
According to the SEC’s case against CR Intrinsic, Dr. Gilman tipped Martoma off about the negative results of a clinical drug trial about two weeks before those results were made public in 2008. The SEC said Martoma then used the information to assist several hedge funds in selling off almost $1 billion worth of shares in Elan Corporation, plc (NYSE:ELN) and Wyeth Limited (NSE:WYETH) (BOM:500095) within a period of about a week.
Today the SEC filed an amended complaint which added SAC Capital Advisors and four of the hedge funds managed by CR Intrinsic and SAC Capital as “relief defendants” because all of them gained from the illegal trades. The gains came in the form of profits made from the sale of the shares and also the avoidance of losses resulting from the fall in the shares’ value after the negative trial information was released to the public. SAC Capital also received fees as a result of making the trades in connection with the case.
A judge must still approve the settlement offer, which the SEC said would resolve its charges against CR Intrinsic in connection with the trades of shares of Elan Corporation, plc (NYSE:ELN) and Wyeth Limited (NSE:WYETH) (BOM:500095). The settlement does not include the charges filed by the SEC against Martoma himself. The agency has entered into a consent judgment with Dr. Gilman separately as well.