GOP SEC Commissioners Question SAC Victim Fund Distribution

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Two Republican members of the Securities and Exchange Commission, Daniel Gallagher and Michael Piwowar,  allege that their colleagues on the commission caved in to plaintiffs’ lawyers in deciding to distribute $602 million from SAC Capital Advisors to victims of the now-defunct firm’s insider trading.

The two men, in a column for The Wall Street Journal published on Tuesday, questioned if there are any actual “victims” to these crimes, and, if there are, whether they could be identified and located.

Statement from Republican SEC members

“In this case, it will be incredibly difficult and expensive to identify and compensate the victims,” Gallagher and Piwowar wrote. “In fact, it may not be possible to know who was harmed. The only guaranteed winners will be administrators who distribute the fair fund and class-action lawyers who will take a significant cut of any funds paid to their clients.”

Caved in to lawyers

Gallagher and Piwowar said the three Democrats on the commission simply gave in after facing an “unprecedented lobbying campaign” by plaintiffs’ lawyers. The two men pointed out that the SEC had received dozens of letters from “purported victims” that were clearly “sent at the behest of class-action lawyers in a parallel civil action.”

They noted: “These lawyers played no part in the commission’s successful enforcement action, yet they may now receive tens of millions of dollars as a result of the majority’s vote.”

Several class-action law firms have sued SAC Capital (which was closed and then eborn a family office called Point72 Asset Management) for $2 billion. The commission announced said last month that it would establish a fair fund to distribute the settlement to investors holding shares in Elan Corp. and Wyeth LLC in 2008, when former SAC trader Mathew Martoma traded illegally on tips about a drug trial run by the companies. Details regarding the distribution of the fund have yet to be finalized.

David Kaplan sent the following statement to ValueWalk:

The WSJ op-ed by the two dissenting SEC commissioners on the October 29 Commission voted to recommend establishment of a Fair Fund from the proceeds of the SEC’s settlement with SAC Capital.

I sent the following Letter to the Editor of the WSJ, still apparently being processed, as the SEC dissenters’ op-ed was filled with errors.  Here is a copy of my letter to the WSJ editor:


To the Editor:


In “Dissenting from an SEC Windfall for Lawyers” (op-ed, Nov. 11), two of the five SEC commissioners argue against paying investors the $602 million that the SEC recovered from SAC Capital in a prominent insider trading case involving leaked results from an Alzheimer’s Disease drug trial conducted by Elan and Wyeth.  They assert that “class-action lawyers [will] take a significant cut of any funds paid to their clients,” refer to a “coordinated campaign by the plaintiffs bar,” and decry the unfairness of private attorneys receiving payment for work done by the SEC.


I am one of the lead plaintiffs in the class action on behalf of Elan investors, and all of the authors’ claims are incorrect.  First, any payment to “class-action lawyers” from the SEC’s funds is barred by a specific provision of the Securities Exchange Act.  In addition, the class counsel I retained confirmed last year to the SEC that they would not seek compensation from the Fair Fund.  The letter writing campaign to the SEC was conceived and executed by me and other investors, not our counsel.


The authors also claim it would be difficult to identify harmed investors, but identifying victims in this case is no harder than in any other securities class action, and less than 1% of the fund will go to the fund administrator, who will be selected by the SEC.  All of the rest will go to investors who traded in the market opposite SAC to compensate them for their actual trading losses, and none to our counsel.


The SEC has made insider trading proceeds it recovered available to injured investors in many other cases, and Congress enacted a statute in 1988 that specifically gave investors the right to sue.  The position taken by Messrs. Gallagher and Piwowar would thus represent a change in policy, and one at odds with the SEC’s basic mission of protecting investors and its longstanding practice of compensating injured investors out of funds it recovers.


David E. Kaplan

Washington, D.C.


Note to editor:  The statutory provision referenced above is Section 21(d)(4) of the Securities Exchange Act of 1934, which was added by the Private Securities Litigation Reform Act of 1995.


Thank you,


David E. Kaplan


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