Thursday, March 28, 2013

Judge Questions SEC Settlement

Manhattan Federal District Judge Victor Marrero today questioned a hedge fund paying the government $600 million in penalties to settle insider trading accusations while not having to admit doing anything illegal. Reserving judgment on approving the settlement during a hearing on the landmark deal between the Securities and Exchange Commission and SAC Capital Advisors, the judge found it incongruous when told the client merely made a business decision in agreeing to pay such a large fine. Allegations included illegally trading pharmaceutical stocks after a former portfolio manager obtained secret information from a doctor about clinical drug trials. The hearing focused heavily on “neither admit nor deny wrongdoing” language in the agreement. Reportedly, federal judges across the country have expressed concerns over whether government agencies are letting defendants off too easy by not forcing them to admit liability. Last year, District Judge Jed S. Rakoff rejected the settlement in a fraud case brought against Citigroup by the SEC that let the bank avoid acknowledgment that it did anything wrong. That decision and whether he exceeded his authority in rejecting the settlement is now under review by a Federal Appeals Court. As such, Judge Marerro hinted that he might condition any approval of the SAC settlement on the outcome of the Citigroup appeal. Though the United States Court of Appeals for the Second Circuit is likely limited to Judge Rakoff’s ruling within the context of the specific facts of the Citigroup case relating to the bank’s sale of a complex $1 billion mortgage bond deal, it could impact other cases. Judge Marerro noted that other federal judges across the country had recently followed Judge Rakoff’s lead and cast skepticism on the “neither admit nor deny language,” in some cases demanding greater accountability before approving settlements. SEC counsel urged Judge Marerro to approve the settlement with SAC, despite the pending appeals court decision, acknowledging risk of a shifting legal landscape. “But the ground is shaking,” said Judge Marerro,“there are tremors.” See full story here--