Maybe hedge-fund titan Steve Cohen should have waited to buy that $155 million Picasso to celebrate his insider-trading settlement with the Securities and Exchange Commission.
Manhattan federal Judge Victor Marrero said he may not approve a record $602 million settlement between the SEC and an affiliate of Cohen’s SAC Capital because he has questions about controversial language allowing the hedge fund to “neither admit nor deny” wrongdoing.
Last month, 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’s CR Intrinsic unit is the largest such settlement of its kind.
If Marrero approves the settlement, he might make it conditional based on the outcome of a pending appeals court case involving a $285 million settlement with Citigroup. In that case, Judge Jed Rakoff rejected the deal and criticized the SEC for allowing the bank to settle while evading the issue of culpability.
“The ground is shaking, let’s admit that,” Marrero said yesterday, regarding the SEC’s common practice of using “neither admit nor deny” language in settlements. “There are some tremors.”
Marrero also expressed doubts about the deal because the question of SAC’s culpability may soon be answered in the upcoming trial of former SAC trader Mathew Martoma.
“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.
Prosecutors have accused Martoma of helping SAC and its CR Intrinsic unit earn a whopping $276 million trading in two drug stocks. He allegedly received confidential tips about the results of a clinical trial from a doctor who is cooperating with the authorities.
Martoma could go on trial for insider trading as early as this year. His pediatrician wife, Rosemary, attended the morning settlement conference with Martoma’s lawyer, Charles Stillman.
The SEC’s $602 million settlement centers on trades SAC made based on Martoma’s alleged insider tips. If approved, the deal would clear CR Intrinsic and SAC of the civil matter, although the agency can pursue charges against people and companies not yet named.
Marrero also questioned the size of the deal, saying the record financial penalty hinted at the seriousness of the allegations.
“It seems counter-intuitive and incongruous to settle a case for $600 million that might cost $1 million to litigate,” he 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.”
This week, The Post’s Page Six reported that Cohen bought Picasso’s “Le Reve” from hotel magnate Steve Wynn in part to celebrate his putting the SEC probes behind him.
In addition to the $602 million to settlement with CR Intrinsic, SAC agreed to pay $14 million to resolve allegations of insider trading at another SAC unit, Sigma Capital, involving shares of Dell and Nvidia.