SAC Capital Advisors agreed to pay $10 million to end a lawsuit by Wyeth LLC shareholders who claimed they lost money because the fund formerly run by billionaire Steven Cohen engaged in insider trading.
A pension fund for employees of Birmingham, Alabama, that owned Wyeth shares sued SAC in New York federal court in April 2013, accusing it of damaging shareholders by trading on tips about an Alzheimer’s drug. The settlement, which was reached with the help of a mediator, needs approval from U.S. District Judge Victor Marrero.
Cohen stopped managing outside money after SAC was shut down as part of a 2013 plea deal with the government. The firm paid $1.8 billion in penalties and was changed into a family office called Point72 Asset Management. Cohen wasn’t charged with wrongdoing.
The SEC is proceeding with an administrative case in which Cohen is accused of failing to supervise Mathew Martoma, the former SAC trader convicted of insider trading in Wyeth shares. A hearing in the proceeding is set for April in New York. Martoma, who is serving a nine-year sentence for using illegal tips to make $275 million on trades in Wyeth and Elan Corp., has asked a federal appeals court to overturn his conviction.
A group of Elan investors also sued SAC Capital. The lawsuit was certified as a class action earlier this month. Mark Herr, a spokesman for Point72, said the firm is pleased to have resolved the Wyeth matter. It still plans to defend the remaining suit, he said.
A major appeals court ruling in December 2014 forced prosecutors to seek dismissal of several insider-trading guilty pleas and verdicts. In its decision, the U.S. Court of Appeals in New York held that, to be found guilty of insider trading, a defendant must know the tips came from someone who not only had a duty to keep the information secret but also got a benefit for leaking it.
U.S. prosecutors have now voluntarily dismissed or lost on appeal more than a dozen of the more than 80 convictions won during a six-year crackdown on insider trading, all tied to the new standard. The government in October dropped charges against former SAC fund manager Michael Steinberg.
Martoma, whose case is the largest insider-trading prosecution ever brought against an individual, is relying on the December 2014 ruling in his appeal, although it might be more difficult for him to prevail because the tipper received fees for consulting with him about a drug in development.