New York: The SEC announced Friday 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 illicit profits.
In a record insider trading settlement, the Securities and Exchange Commission said CR Intrinsic Investors, an SAC affiliate, would pay the sum to settle charges that it participated in an insider trading scheme involving a clinical trial for an Alzheimer’s drug.
The SEC charged that 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 medical consultant to the two drug makers, in July 2008.
CR Intrinsic and Martoma shared the information with several related hedge funds, who then sold off more than $960 million worth of Elan and Wyeth securities before Gilman publicly announced the test results.
“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.
Separately, the SEC announced a fine of $14 million for another SAC unit, Sigma Capital, for insider trades in Dell and Nvidia securities.
The fines raised pressure on SAC founder and billionaire Steven A. Cohen, a star of the New York hedge fund industry whose profits have stood out in an business accustomed to outsized gains.
Cohen has not been charged, but the SEC said Friday that it was adding SAC Capital and four hedge funds managed by CR Intrinsic and SAC Capital as “relief defendants” in the case “because they each received ill-gotten gains from the insider trading scheme.”
CR Intrinsic was ordered to pay $275 million in disgorgement of gains, a $275 million penalty, and nearly $52 billion in prejudgment interest over the case.
The SEC said that the company neither admitted nor denied the charges.
The SEC case against Martoma continues, while 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.