A federal judge has ruled Pfizer cannot claim approximately $75.2 million remaining from a US Securities and Exchange Commission (SEC) insider trading settlement.
The case involves involving Steven A. Cohen’s former hedge fund, SAC Capital Management.
The decision directs the funds to the US Treasury, as requested by the SEC.
Background of the Case
The case stems from a $602 million civil settlement related to insider trading tied to SAC’s trading in shares of Wyeth and Elan.
The trades were based on tips from neurologist Sidney Gilman about a 2008 Alzheimer’s drug trial. Wyeth is a drugmaker acquired by Pfizer in 2009.
Its lawyers argued it was entitled to the remaining settlement funds as a victim of the insider trading scheme.
Mathew Martoma, a former SAC portfolio manager, was convicted for his role in the scheme. SAC Capital pleaded guilty to fraud in 2013 and paid $1.8 billion in penalties to the SEC and other authorities.
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Court’s Ruling
US District Judge Victor Marrero in Manhattan rejected Pfizer’s claim. He said Wyeth did not qualify as a victim of the insider trading under SEC guidelines.
The judge said Pfizer failed to demonstrate that Wyeth suffered pecuniary harm directly attributable to the scheme.
He wrote:
“The court certainly agrees that corporations whose secrets are misappropriated for insider trading purposes are generally victims of wrongdoing.
“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 noted a $7 billion drop in Wyeth’s market value following the drug trial results in 2008 was unrelated to the insider trading, which became public years later.
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Implications of the Decision
The SEC had argued the leftover $75.2 million from the settlement should be directed to the US Treasury after compensating investors in Wyeth and Elan who suffered losses.
Judge Marrero agreed, effectively closing the case and reinforcing the standards for corporate claims in insider trading disputes.
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Pfizer’s Argument Rejected
Pfizer contended it was entitled to the funds because Dr. Gilman, who consulted for Wyeth, breached his fiduciary duty by leaking confidential information.
However, the court found no direct financial harm to Wyeth from the insider trading scheme.
SEC’s Role and Settlement Distribution
The SEC’s management of the funds underscores its mandate to prioritize compensating harmed investors.
The decision to direct the leftover funds to the U.S. Treasury aligns with federal regulations governing disgorgement in insider trading cases.
Broader Context
The ruling adds another chapter to the long-running legal fallout from the insider trading scandal involving SAC Capital.
Steven A Cohen, SAC’s founder, was not criminally charged but accepted a two-year ban on managing outside money to settle an SEC probe.
SAC later rebranded as Point72 Asset Management.
Cohen, now worth $21.3 billion according to Forbes, has since rebuilt his hedge fund operations.
The Road Ahead
Judge Marrero’s decision underscores the stringent requirements for corporations to qualify as victims in insider trading cases.
While Pfizer argued Wyeth suffered reputational harm from the scandal, the court found no evidence of financial loss linked directly to the trading scheme.
The remaining $75.2 million will now go to the US Treasury, marking the end of Pfizer’s bid to claim the funds.
