Elan Corporation, plc (ADR) (NYSE:ELN) shareholders filed a law suit seeking nearly $1 billion against SAC Capital for alleged insider trading on the Irish drug maker by the hedge-fund.
Why SAC Capital Is Sued?
According to a report in New York Post, the law suit alleges Cohen’s SAC Capital traded on tips about a failed Elan drug trial, allowing the hedge fund to earn $720 million besides selling Elan shares worth nearly $500 million.
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Cohen is considered one of the $2 trillion hedge fund industry’s best known and most successful traders. He has been generating an average annual return of 25 percent over the life of his 20-year-old firm.
In a consolidated class action complaint filed in Manhattan federal court today, the Elan shareholders indicated that they are able to quantify their damages, based on the Securities Exchange Commission’s civil settlement with SAC.
The suit alleges that the hedge fund illegally gained $549 million based on material and non-public information. Besides, the suit seeks an interest of $396 million, making a total of $945 million.
Federal prosecutors in Manhattan have alleged that Mathew Martoma, a former portfolio manager at SAC unit CR Intrinsic Investors, received inside information about the results of an Alzheimer’s drug trial, allowing the hedge fund to record more than $275 million in profits and losses avoided.
According to prosecutors, Cohen’s SAC sold over 20 percent of the stock’s trading volume representing nearly $500 million in Elan shares. SAC also shorted Elan and Wyeth shares.
During March, the hedge fund titan Steven A. Cohen’s firm SAC Capital agreed to pay over $600 million to U.S. Securities Exchange Commission to settle allegations that one of its former employees participated in an insider trading scheme involving shares of Elan Corp, and Wyeth, now a part of Pfizer.
This settlement with SEC is considered the largest ever by a hedge fund. This settlement is bigger than the previous sanction in an SEC insider trading case, which was the $156 million that Galleon Group founder Raj Rajaratnam was ordered to pay. That case culminated with Rajaratnam’s criminal conviction in May 2011.
According to New York Post, Elan Corporation, plc (ADR) (NYSE:ELN) shareholders could get about $259 million from the SEC’s earlier deal with SAC Capital. In that event, the damages would be reduced to $685 million.