U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23133 / November 14, 2014
Securities and Exchange Commission v. CR Intrinsic Investors, LLC et al., Civil Action No. 12 Civ. 8466 (VM)
On November 14, 2014, the Securities and Exchange Commission announced that it had filed a motion asking the Court to establish an approximately $602 million Fair Fund for investor victims pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002.
The SEC filed civil charges in November 2012 against the hedge fund advisory firm CR Intrinsic Investors and others for their role in an insider trading scheme involving the securities of pharmaceutical companies Elan Corporation and Wyeth. In March 2013, CR Intrinsic and its affiliates agreed to pay $601.7 million in disgorgement, prejudgment interest, and civil penalties to resolve the SEC's claims. The Court approved the SEC's settlement with CR Intrinsic and its affiliates in June 2014, and in August 2014 CR Intrinsic and its affiliates paid approximately $601.7 million to an interest bearing account with the Court Registry Investment System.
In its November 20, 2012 complaint, the SEC alleged that Mathew Martoma, then a portfolio manager at CR Intrinsic, illegally obtained confidential details about the clinical trial from Dr. Sidney Gilman, who served as chairman of the safety monitoring committee overseeing the trial. Dr. Gilman was selected by Elan Corporation and Wyeth to present the final drug trial results to the public. In phone calls that were arranged by a New York-based expert network firm for which he moonlighted as a medical consultant, Dr. Gilman tipped Martoma with safety data and eventually details about negative results in the trial about two weeks before they were made public in July 2008. Martoma and CR Intrinsic then caused several hedge funds to sell more than $960 million in Elan and Wyeth securities in just over a week.
The Commission is requesting that the Court establish a Fair Fund for the funds paid in the settlement and to be used to compensate those investors harmed in connection with the insider trading of CR Intrinsic and its affiliates. Congress and court decisions have agreed that certain contemporaneous investors may be considered victims of insider trading. Where, as is the case here, the size of the fund and the circumstances of the trading make the identification of harmed investors feasible, the Commission has determined it is appropriate to create a Fair Fund for investor victims.
The Commission is recommending that the Fair Fund be established for the benefit of those investors who traded contemporaneously with CR Intrinsic and its affiliates from July 21 to July 29, 2008, up to 100% of such investors' harm, with the remainder of the funds, if any, to be sent to the Treasury. Whether any particular investor will receive a distribution will ultimately be subject to the plan of distribution that the Court approves.
The Court previously entered a consent judgment against Gilman requiring him to pay disgorgement and prejudgment interest, and permanently enjoining him from further violations of the federal anti-fraud securities laws. Martoma was convicted of criminal securities fraud for his role in the scheme in February 2014. The SEC's litigation against Martoma continues.