It's (conditionally) Official:  $602K is the new record fine for a civil insider trading case. ^*

[ by Howard Haykin ]

The SEC-SAC Capital $602 million settlement was tentatively approved by Judge Victor Marrero of Federal District Court in Manhattan, (*) who conditioned his ruling on a pending Federal Appeals Court ruling.  The case related to the conduct of a former SAC portfolio manager, Mathew Martoma, who was charged in November with illegal trading in two pharmaceutical stocks and helping SAC make $276 in illicit profits and avoided losses. Mr. Martoma has denied the charges.

The Judge further reiterated his serious concerns with the “neither admit nor deny” language contained in the agreement.  Meanwhile, he would await guidance from an SEC case involving Citigroup that was heard by the U.S. Court of Appeals for the 2nd Circuit. 

The pending appellate case, heard by the U.S. Court of Appeals for the 2nd Circuit, ...  involves the review of a ruling by Judge Jed Rakoff, who rejected a $285 million settlement in a fraud case brought against Citigroup by the Securities and Exchange Commission. The agreement let the bank avoid acknowledging that it did anything wrong. Judge Rakoff called the settlement “chump change” for Citigroup and suggested it was not in the public interest; the bank and the S.E.C. said that the judge overstepped his bounds in interfering with the decision of a government agency.

More on Judge Marrero Written Opinion.    Much of the Judge's 34-page opinion centered on the “neither admit nor deny wrongdoing” language contained in the SAC settlement and many other settlements struck by the SEC.  In recent months, federal judges across the country have followed Judge Rakoff’s lead and suggested that the SEC and other government agencies are letting defendants off lightly by not forcing them to acknowledge wrongdoing.

Among Judge Victor Marrero's written comments or concerns expressed in his opinion:

• “Neither admit nor deny wrongdoing” language has no place in a post-financial crisis world. 

• “Perhaps we live in a different era.  In this age when the notion labeled ‘too big to fail’ (or jail, as the case may be) has gained currency throughout commercial markets, some cynics read the concept as code words meant as encouragement by an accommodating public – a free pass to evade or ignore the rules, a wink and a nod as cover for grand fraud, a license to deceive unsuspecting customers.”

• “Perhaps, too, in these modern times, new financial, industrial, and legal patterns have merged that call for enhanced regulatory and, as appropriate, judicial oversight to counter these sinister attitudes.”

Judge Marrero then laid out a court’s balancing act in weighing the approval of settlements struck by government agencies that do not force a defendant to admit liability.

• “The court must avoid undue meddling and second-guessing, and must accord government agency law enforcement and financial determinations such as those now before it the proper level of deference they are due.  At the same time, the court cannot conceive that Congress intended the judiciary’s function in passing upon these settlements as illusory, as a predetermined rubber stamp for any settlement put before it.”

• “The damage the victims suffer cannot always be blamed on acts of God or the mischief of leprechauns. xThere cannot be proper closure when incidents causing extensive loss occur, if the individuals or entities responsible for the large scale wrongful consequences are not properly held accountable.”

The judge’s words seemed to suggest that he was grudgingly approving the SAC settlement. On page after page, Judge Marrero used strong language – and lengthy sentences – to convey his discomfort the SEC’s policy. In one part of the opinion, he said he was “troubled” by the practice; a paragraph later, he expressed “misgivings” about it. At another point, he called the settlement terms “both counterintuitive and incongruous” and sharply criticized the government’s settlement practices.

For further details, go to:   [ Dealbook, 4/16/13 ].