The Securities and Exchange Commission has secured a record $616 million settlement with Steven A. Cohen's hedge fund, SAC Capital Advisors, which is linked with Sigma Capital Management and CR Intrinsic Investors LLC, following a civil suit which alleged improper trading activity. The settlement—which SAC consented to without admitting or denying any wrongdoing—is said to be a record for insider trading action.
The recent complaint further may also speed up the FBI's criminal probe of SAC fund managers suspected of insider trading schemes.
According to the bulky lawsuit, SAC allegedly sold almost $1 billion in shares of pharmaceutical stocks Elan Corp. and Wyeth LLC after former SAC portfolio manager Mathew Mortoma allegedly received secret information from a medical doctor about problems with the drug company's new drug for Alzheimer's disease.
The allegations stated that SAC owner Cohen had a 20-minute phone conversation with Martoma the very night before SAC began dumping its drug holdings.
Martoma has pleaded not guilty to illegal trading.
SEC Press Release 2013-41: CR Intrinsic Agrees to Pay More than $600 Million
SAC Capital will also pay $14 million in response to allegations of an insider trading ring that involved Dell Inc. and several other illegally traded technology stocks.
In that smaller suit, former SAC analyst Jon Horvath of San Francisco pleaded guilty to charges of illegal trading, including allegations that he leaked secret information to two colleagues, including a previously-unknown supervisor. According to the SEC, Horvarth's illegal tips resulted in over $6.4 million in profit.
Specifically, the SEC found Horvath sent an e-mail two days before Dell was to report its second-quarter 2008 earnings, warning colleagues that Dell would miss earnings estimates. Precisely 24 minutes later, one of the e-mail's recipients began selling off Dell stock.
By the time Dell released its second-quarter earnings, the two fund managers allegedly had reduced their holdings by 600,000 shares, earning over $1 million in profit while helping Sigma avoid losses of nearly $2 million.
Horvath allegedly provided a similar tip about Nvidia stock in May 2009, resulting in $500,000 in profit while preventing $700,000 in losses.
SEC Press Release 2013-42: SEC Charges Hedge Fund Firm Sigma Capital with Insider Trading
The historic settlement caps a five-year SEC crackdown on insider trading which has implicated at least six present or former SAC employees, four of which—including Hovarth—have pleaded guilty to federal charges.
In regards to the tech trading scheme, eight have been charged, six of which have pleaded guilty to insider trading, including Danny Kuo, a former analyst at Whitter Trust Co. of South Pasadena, California.
Unfortunately, the larger $602 million pharma settlement—a fraction of alleged sales—is comprised of $275, plus interest, in disgorgement and a $275 penalty, which, combined with the $14 million tech settlement for a total of $616 million, will go into a US Treasury general revenue fund and not to individual investors with legitimate grievances.
If you have invested with SAC Capital Advisors, affiliates Sigma Capital Management, CR Intrinsic or any other broker or firm that has engaged in misconduct such as running an insider trading scheme, and such illegal activity has resulting in losses or otherwise proven harmful to your investments or financial interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.
News: SAC Capital to Pay $616 Million in Insider Trading Cases (New York Times)
News: SAC Criminal Probe May Speed Up With SEC Allegations (Bloomberg Businessweek)