NEW YORK (AP) — A New York judge on Tuesday approved a $602 million payment that would resolve insider trading allegations against SAC Capital Advisors — pending a ruling in another case that involves Citigroup and the SEC.
Judge Victor Marrero said the settlement payment is fair, but said he is "troubled" by the idea that CR Intrinsic Investors LLC, a fund affiliated with billionaire Steven Cohen's SAC, and others could make a large payment to resolve the allegations without admitting or denying that they engaged in insider trading.
SAC agreed to the settlement in March. Federal regulators say it's the largest insider trading settlement ever.
Marrero is waiting for a federal appeals court to rule on a judge's decision to reject Citigroup Inc.'s $285 million settlement over toxic mortgage securities. In that ruling, Judge Jed Rakoff said the Securities and Exchange Commission shouldn't accept a settlement without an admission of liability.
The SEC said it is reviewing Marrero's judgment.
The SEC charged CR Intrinsic Investors with insider trading late last year, saying portfolio manager Mathew Martoma illegally obtained confidential details about an Alzheimer's drug trial from a doctor before the final results went public and traded on that information. Martoma and CR Intrinsic then caused several hedge funds to sell more than $960 million in Elan Corp. PLC and Wyeth securities in a little more than a week.
Regulators added SAC Capital Advisors and associated funds as defendants. The agency said each fund received ill-gotten gains from the scheme.
When federal regulators settle cases, defendants often agree to pay penalties and return ill-gotten gains and accept new oversight, but do so without admitting or denying they broke the law. Marrero acknowledged that that's a longstanding practice, but said it could be appropriate in some cases and wrong in others.
"In this court's view, it is both counterintuitive and incongruous for defendants in this SEC enforcement action to agree to settle a case for $600 million that would cost a fraction of that amount, say $1 million, to litigate, while simultaneously declining to admit the allegations asserted against it by the SEC," Marrero wrote. He added that an observer might conclude CR Intrinsic and the other defendants "essentially folded" as long as the SEC agreed they wouldn't have to admit to doing anything wrong.
The judge said he will wait for the ruling from the 2nd U.S. Circuit Court of Appeals in Manhattan in the Citigroup case.
In 2011 Rakoff rejected Citigroup's proposed settlement with the SEC because the company did not admit it had done anything wrong. He asked lawyers for the SEC and Citigroup if it made sense to allow the company to pay penalties while denying allegations it misled investors on a complex mortgage investment.