Steve Cohen, proud papa of a record $155 million Picasso, is sweating it out after a judge questioned the SEC’s practice of allowing his hedge fund to neither admit nor denywrongdoing as part of a $602 million civil settlement (Reuters)
Perhaps hedge-fund titan Steve Cohen should have waited to buy that $155 million Picasso to celebrate his insider-trading settlement with the government.
Manhattan federal Judge Victor Marrero yesterday balked at the agreement between the Securities and Exchange Commission and Cohen’s SAC Capital that allows the firm to pay a $602 million fine without admitting or denying guilt.
“It seems counter-intuitive and incongruous to settle a case for $600 million that might cost $1 million to litigate,” Marrero said. “How believable is it to the public the claim that they did nothing wrong?”
“We are willing to pay $600 million because we have a business to run,” said SAC’s lawyer Martin Klotz. “We want to put this behind us.”
Two weeks ago, SAC agreed to pay a total of $616 million to the SEC to settle two insider-trading probes. The larger $602 million agreement with SAC and an affiliate, CR Intrinsic Investors, is the largest such settlement involving insider-trading allegations.
Marrero isn’t the first judge to question the SEC’s practice of extracting financial penalties from firms without determining whether they acted improperly.
Last year, Manhattan federal Judge Jed Rakoff rejected the regulator’s $285 million pact with Citigroup over the sale of soured mortgage-backed securities, saying it came at “the expense, not only of the shareholders, but also of the truth.” The SEC has appealed.
Marrero said that if he approves the SAC settlement, he might make it conditional based on the outcome of that pending appeal.
“The ground is shaking, let’s admit that,” Marrero said. “There are some tremors.”
Marrero also expressed doubts about the settlement because the question of SAC’s culpability may be addressed in the upcoming trial of one of its former traders.
Federal prosecutors have accused the former trader, Mathew Martoma, of helping SAC and CR Intrinsic earn $276 million trading in two drug stocks. Martoma allegedly received tips about the results of a clinical trial from a doctor now cooperating with authorities.
“What happens if in the criminal courtroom across the hall Mr. Martoma is convicted? What does it make of your settlement?” Marrero said in response to arguments from SEC lawyer Charles Riely.
Martoma is scheduled to go on trial on criminal charges as early as this year. His pediatrician wife, Rosemary, attended the settlement conference yesterday with Martoma’s lawyer, Charles Stillman.
If the $602 million settlement is approved, it would clear CR Intrinsic and SAC in the civil matter, although it doesn’t preclude the SEC from bringing cases against individuals.
Last week, The Post’s Page Six reported that Cohen bought Picasso’s “Le Reve” from hotel magnate Steve Wynn in part to celebrate putting the SEC probes behind him.
Cohen also reportedly reached a deal last week to pay $60 million for an oceanfront home in tony East Hampton.