A federal judge has ruled against Pfizer in its effort to recover $75.2 million from a U.S. Securities and Exchange Commission (SEC) insider trading settlement involving billionaire Steven A. Cohen’s former hedge fund, SAC Capital Management.
The decision, issued by U.S. District Judge Victor Marrero in Manhattan, determined that Wyeth, the drugmaker acquired by Pfizer in 2009, did not qualify as a victim of the securities violations in the case and is therefore not entitled to the funds.
SEC Funds Redirected to U.S. Treasury
Judge Marrero ordered the $75.2 million in leftover settlement funds to be transferred to the U.S. Treasury, as requested by the SEC. Pfizer and its legal representatives have not commented on the ruling.
Origins of the Case
The dispute stems from a $602 million civil settlement related to insider trading involving SAC Capital. Mathew Martoma, a portfolio manager at SAC, traded on insider tips from neurologist Sidney Gilman regarding a 2008 Alzheimer’s drug trial by Wyeth and Elan.
SAC Capital pleaded guilty to fraud in 2013 and agreed to pay $1.8 billion in penalties. The SEC distributed most of the settlement to compensate Wyeth and Elan investors but retained $75.2 million in undistributed funds. Pfizer argued it was entitled to the remaining amount due to Gilman’s breach of fiduciary duty to Wyeth.
Judge’s Rationale
Judge Marrero dismissed Pfizer’s claim, stating that while Wyeth may have suffered reputational harm from the scandal, it did not experience direct financial harm from the insider trading scheme.
“The court agrees that corporations whose secrets are misappropriated for insider trading purposes are generally victims of wrongdoing,” Marrero wrote. “But Pfizer has failed to allege how the insider trading scheme and Wyeth’s subsequent reputational harm qualifies as pecuniary harm for purposes of distributing the disgorged funds.”
The judge also noted that Wyeth’s $7 billion market value drop following the Alzheimer’s drug trial was unrelated to the insider trading scheme, which only became public three years later.
Broader Context of the SAC Scandal
The SAC insider trading case, one of the largest of its kind, involved multiple settlements and convictions. Cohen, who was not criminally charged, agreed to a two-year ban on managing outside funds and later rebranded SAC as Point72 Asset Management in 2014.
Mathew Martoma was convicted and sentenced to nine years in prison. Cohen, who remains a prominent figure in finance, is worth an estimated $21.3 billion according to Forbes.
Case Background
The case, titled SEC v. CR Intrinsic Investors LLC et al., was heard in the U.S. District Court for the Southern District of New York under docket number 12-08466.
This ruling highlights the complexities of corporate accountability and the distribution of funds in high-profile insider trading cases.
