Settlement With SAC Capital Given Approval
(CN) - A federal judge approved six deals that allow hedge funds S.A.C. Capital and CR Intrinsic settle allegations of insider trading without admitting any wrongdoing.
The Securities and Exchange Commission reached the six proposed consent judgments with S.A.C. Capital Advisors and its subsidiary CR Intrinsic, hedge funds it accused of making $600 million off insider trading.
Approved U.S. District Judge Victor Marrero last week, the agreements do not require the funds to admit or deny the allegations of the complaint.
Marrero said he delayed his approval of the judgments until the 2nd Circuit resolved a similarly controversial settlement in SEC v. Citigroup.
"The court was struck by a seeming contradiction: a declaration by sophisticated defendants claiming they committed no wrongdoing that flies in the face of their unusual and swift capitulation, and that appears at odds with their acceptance of responsibility to pay disgorgement and penalties of such staggering amounts," Marrero explained in the Wednesday order.
The 2nd Circuit ruled earlier this month that it was improper for a judge to decide the "adequacy" of the settlement, or to determine that the SEC's policy of not demanding an admission of guilt violates the public interest.
Therefore, "the court is persuaded that, at this time, each of the proposed consent Judgments is fair and reasonable under the factors outlined in Citigroup IV," Marrero said, citing the 2nd Circuit's decision. "The proposed consent judgments are legal and clear, and they resolve the claims in the amended complaint."
Marrero nevertheless defended his decision to delay approving the judgments.
The delay "has called attention to the importance of more rigorous inquiry by the SEC in its application of 'neither admit nor deny' provisions in settlements embodying the exceptional circumstances presented by this action, specifically those where parallel criminal cases track an SEC complaint arising from the same facts," the 14-page opinion states.
While a final ruling was pending, CR Intrinsic executive Mathew Martoma was convicted on three counts of securities fraud, and the government resolved related forfeiture proceedings against both hedge funds.
"In such instances, there may be value in a wait-and-see approach before rushing into a settlement and hurrying to a district court to seek approval of a proposed consent decree," Marrero wrote. "Situations could arise, as might have been the case here, in which the outcome of a strong criminal case could strengthen the administrative agency's hand in achieving a settlement more favorable to the public good and the interests of justice."