[ by Howard Haykin ]

Perhaps the judge was miffed that Stephen A. Cohen had the effrontery to go on a multi-million dollar shopping spree immediately after agreeing to pay a $616 million fine.  Then again, it was only $215 million on one painting and one house situated on oceanfront property in East Hampton - and what is $215 million to someone whose net worth hovers around $9 billion?  But Federal Judge Victor Marrero at District Court in Manhattan on Thursday said nothing about the shopping expedition. 

Instead, he asked the billionaire hedge fund manager to explain how a hedge fund can pay the U.S. government $600 million to settle insider trading accusations but not have to admit that it did anything illegal.  More to the point, Judge Marrero said:

“There is something counterintuitive and incongruous about settling for $600 million if it truly did nothing wrong.”

The settlement between the SEC and the hedge fund SAC Capital Advisors, owned by the billionaire stock picker Steven A. Cohen, is after all a landmark settlement.  SAC lawyer Martin Klotz answered the judge, saying his client made a business decision in agreeing to pay such a large fine. 

"We’re willing to pay $600 million because we have a business to run and don’t want this hanging over our heads with litigation that could last for years.”

Reserved Judgment on Approving the Settlement.   Not quite ready to rubber stamp the settlement, Judge Marerro reserved judgment on approving the settlement.  SAC had agreed to settle SEC accusations that one of its funds had made $276 million in profits and avoided losses by illegally trading 2 pharmaceutical stocks after a former portfolio manager obtained secret information from a doctor about clinical drug trials. A second fund was accused of insider trading in different stock.  This lesser charge amounted to $14 million.

Judge Marerro remained troubled that SAC did not have to acknowledge wrongdoing.  

Perhaps the concern related to the fact that at least 9 current or former SAC employees have been tied to insider trading while at the firm.  Mathew Martoma, a former portfolio manager who was criminally charged with illegally trading in the drug stocks, Elan and Wyeth, pleaded not guilty.  Martoma was not present at Thursday's hearing- but his lawyer and his wife were present - because SAC Capital Advisors and Mr. Martoma are both accused of trading in the same stocks.   

Recalling Judge Rakoff's Decision in the SEC-Citigroup $285 Million Settlement.   Judge Marerro's actions (or choice not to act) is not on reminiscent of Judge Rakoff’s decision in the SEC-Citigroup settlement, but it is directly tied into Mr. Rakoff's decision.

Judge Rakof refused to accept the settlement of some $285 million between the SEC and Citi.  The SEC and Citigroup appealed Judge Rakoff's decision not to accept the settlement because there was no requirement that Citigroup admit wrongdoing - that, coupled with Judge Rakoff's view that the $285 million fine was "pocket change to Citigroup/.

The arguments were presented to a Federal Appeals Court - as to whether Judge Rakoff exceeded his authority in rejecting the settlement – and now is under review.  

On Thursday, Judge Marerro hinted that he might condition any approval of the SAC settlement on the outcome of the Citigroup appeal.  The Judge added:  “That decision will be very much pertinent to what the court has been asked to do here.”

Charles Riely, a lawyer for the SEC, joined the SAC side in urging Judge Marerro to approve its settlement, despite the pending appeals court decision.  “There is always a risk to the legal landscape shifting,” Mr. Riely said.

And Judge Marerro responded:   "But the ground is shaking,” “There are tremors.”

For further details, go to [Dealbook, 3/28/13].