$615M SEC Settlment Reached in Hedge Fund Insider Trading Charges

New York, NY: CR Intrinsic Investors and Sigma Capital Management have agreed to pay $615 million to the US Securities and Exchange Commission to settle insider-trading charges, in what the SEC called the largest-ever insider-trading settlement. The companies are affiliated with the hedge fund giant SAC Capital.

According to the SEC complaint, CR Intrinsic Investors allegedly engaged in an insider-trading scheme involving a new Alzheimer's drug under development by pharmaceutical companies Wyeth and Elan Corporation. Specifically, the complaint charged that Mathew Martoma, one of CR Intrinsic's portfolio managers, obtained confidential information about the drug from a doctor through a New York-based "expert network" company, which connects investors with industry experts. The doctor, Sidney Gilman, told Martoma that the drug had done poorly in clinical tests two weeks before those tests became public, according to the SEC. Martoma and CR Intrinsic then had funds they controlled sell more than $960 million in Elan and Wyeth securities in about a week, the The New York Law Journal reported.

If the settlement receives court approval, CR Intrinsic would pay $275 million in disgorgement, $52 million in prejudgment interest and a $275 million penalty. CR Intrinsic neither admits nor denies the allegations. "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," George Canellos, acting director of the SEC's Division of Enforcement, said in a press release.

Sigma Capital Management, the other SAC affiliate, is accused of trading on insider information about the quarterly earnings of Dell and Nvidia Corporation. The SEC complaint alleges that Jon Horvath, a former analyst at Sigma, obtained the non-public information about Dell and Nvidia from a group of other hedge fund analysts. Sigma traded on this information for a gain of $6.425 million, according to the SEC.

Sigma has agreed to pay $6.425 million in disgorgement, prejudgment interest of $1 million and a penalty of $6.425 million. It does not admit or deny the allegations, and the settlement is subject to court approval. The New York Law Journal

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Published on Mar-18-13