The largest ever settlement in an insider trading case was filed yesterday, requiring hedge fund advisory firm CR Intrinsic - an affiliate of S.A.C. Capital Advisors – to pay $274,972,541 in disgorgement, $51,802,381.22 in prejudgment interest, and a $274,972,541 fine.
The SEC views these “historic monetary sanctions” as a sharp warning to hedge fund advisory firms and their funds that they will be held accountable when employees break the law to benefit the firm” and suggests that “a robust culture of compliance and zero tolerance toward employee misconduct” could help other firms avoid similar consequences.
The charges relate to participation in an insider trading scheme involving a clinical trial for an Alzheimer’s drug being jointly developed by two pharmaceutical companies – more fully described in our earlier post. The SEC filed an amended complaint yesterday, adding S.A.C. Capital Advisors and four hedge funds managed by CR Intrinsic and S.A.C. Capital as relief defendants because they had benefited from the insider trading scheme in the form of profits accrued and losses avoided as a result of trades placed in the hedge fund portfolios that CR Intrinsic and S.A.C. Capital managed, and fees that S.A.C. Capital received as a result of these ill-gotten gains.
The settlement is subject to the approval of the U.S. District Court for the Southern District of New York. The settling parties neither admit nor deny the charges.
This settlement does not resolve the charges against Martoma, whose case continues in litigation. The SEC’s investigation is also continuing.