The U.S. Securities and Exchange Commission (SEC) Friday announced its largest-ever insider trading settlement with hedge fund advisory firm CR Intrinsic Investors, which has agreed to pay more than US$600 million to settle charges that it participated in an insider trading scheme.
Late last year, the SEC charged CR Intrinsic, which is an affiliate of renowned hedge fund firm S.A.C. Capital Advisors, with insider trading, alleging that one of the firm’s portfolio managers, Mathew Martoma, illegally obtained confidential details about the results of a clinical trial in an Alzhiemers drug from a doctor who was selected by the pharmaceutical companies, Elan Corporation and Wyeth, to present the final drug trial results to the public. Based on that inside information, Martoma and CR Intrinsic then caused several hedge funds to sell more than US$960 million in Elan and Wyeth securities in a little more than a week, the SEC says.
On Friday, in a settlement filed in federal court in Manhattan, the firm has agreed to pay almost US$275 million in disgorgement, US$51.8 million in prejudgment interest, and a US$275 million penalty. It neither admits or denies the charges in the settlement, which is subject to approval by Judge Victor Marrero of the U.S. District Court for the Southern District of New York.
Also, in an amended complaint filed Friday, the SEC added S.A.C., and four hedge funds managed by CR Intrinsic and S.A.C., as relief defendants because they each received ill-gotten gains from the insider trading scheme.
The settlement does not resolve the charges against Martoma, whose case continues in litigation.
“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,” said George Canellos, acting director of the SEC’s division of enforcement.