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SAC hedge funds fined $614 mn for insider trades

A woman makes her way past the New York Stock Exchange in the snow on March 8, 2012
A woman makes her way past the New York Stock Exchange in the snow on March 8, 2012. The SEC announced it was fining a unit of the hedge fund SAC Capital Advisors more than $600 million over insider trades that netted hundreds of millions of dollars in il

The SEC announced insider trading fines of more than $614 million Friday for affiliates of billionaire Steven A. Cohen's SAC Capital Advisers, dealing another blow to the embattled hedge fund titan.

In a record insider trading settlement, the Securities and Exchange Commission said SAC affiliate CR Intrinsic Investors would pay more than $600 million to settle charges that it earned massive profits on confidential information involving the clinical trial of an Alzheimer's drug.

The SEC also slapped a $14 million fine on SAC unit Sigma Capital Management, over charges that Sigma traded on non-public information about the quarterly earnings of Dell and Nvidia.

Together, the settlements underscore the government's progress in building evidence against SAC.

At the same time, the government has still not charged Cohen himself, a star of the New York hedge fund industry whose profits have stood out in an business accustomed to outsized gains.

SEC officials said that the settlements did not fully close the cases.

"Both investigations are pending, so it is possible there will be additional charges," George Canellos, the SEC's acting director of enforcement, told reporters.

Friday's action "does not preclude any such charges against any person, including Steven Cohen," he said. "We can't tolerate a market rigged for the benefit of insiders and their cronies."

An SAC spokesman said the company is "happy" to have resolved the two cases.

"This settlement is a substantial step toward resolving all outstanding regulatory matters and allows the firm to move forward with confidence," the SAC spokesman said.

Cohen, the SAC spokesman added, "has not been charged with any wrongdoing and has done nothing wrong."

The SEC charged that in July 2008 CR Intrinsic portfolio manager Mathew Martoma obtained advance insider information about negative clinical trial results for the drug, being developed by Elan Corp. and Wyeth, from Sidney Gilman, a consultant to the two drug makers.

CR Intrinsic and Martoma shared the information with several SAC-affiliated funds, which then sold off more than $960 million worth of Elan and Wyeth securities before Gilman publicly announced the test results.

CR Intrinsic was ordered to pay $275 million in disgorgement of gains, a $275 million penalty, and nearly $52 million in prejudgment interest over the case.

The SEC is continuing to pursue a case against Martoma, who faces criminal charges and is expected to face trial. Gilman settled charges against him last year.

In the Sigma case, the SEC said analyst Jon Horvath had gotten insider information on details of quarterly earnings reports from Dell and Nvidia before they were made public, and that Sigma funds traded on the information.

Horvath settled charges earlier this month.

"The firm obtained key quarterly earnings information before it was public and exploited an unfair edge over the rest of the market to reap millions of dollars in unlawful gains," said Sanjay Wadhwa of the SEC's New York regional office.

In both cases, the SEC said that the companies neither admitted nor denied the charges.

The cases have kept attention focused on Stamford, Connecticut-based SAC and its founder Cohen, prominent in New York financial and art-collecting circles. He ranks 117th on the Forbes magazine list of billionaires with an estimated net worth of $9.3 billion.

News accounts have depicted SAC as a having a high-pressure culture to score quick returns on investments and where lagging traders could be fired at a moment's notice.

The SEC charges noted that Martoma earned a $9.3 million bonus in 2008, much of which was "attributable to the illegal profits that the CR Intrinsic and SAC Capital hedge funds had generated in this scheme."

In the following two years, the suit said, he received no bonus.

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