Judge denies motion to dismiss on Elan-Wyeth insider trading case

Jose Castro – Fourth Estate Cooperative Contributor

Manhattan, New York, United States (4E) – Point72 Asset Management, formerly known as SAC Capital Advisors, lost its motion to dismiss the class action suit filed against it for its insider trading scandal involving Elan Pharma and Wyeth Pharma. This comes after a record setting insider trading settlement agreement was reached last year. Other motions and claims were denied by the judge in his ruling.

According to Manhattan US District Judge Victor Marrero, the claims of SAC aka Point72 were premature at this stage of litigation. The ruling said, “SAC’s arguments are inappropriate at this stage in the proceedings. The allegations in this suit concern what has been called the most profitable insider trading scheme ever uncovered.”

Previously, SAC officers plead guilty to securities fraud last November. Part of the plea agreement included the payment of USD1.8 billion for the insider trading violations. Eight senior officers have plea guilty or have been convicted of insider trading. Two others have reached settlement agreements with federal regulators without any criminal prosecution or penalty. Amongst them is SAC’s founder Steven A. Cohen, who agreed to shut down his firm to external investors as well as return the money invested in the scheme.

The judge also dismissed the suit filed by Matthew Martoma, former employee of SAC. He was a former portfolio manager at the CR Intrinsic unit. Martoma was the SAC employee who received tips from employees of Wyeth and Elan, namely Sidney Gilman. Martoma was later convicted of securities fraud and would be sentenced in September. Another employee, Michael Steinberg, failed to supervise Martoma and even profited from his scheme. He was later convicted of insider trading and sentenced to 3 ½ years imprisonment.

Because of this scheme, the firm was able to raise nearly USD555 million in illegal profit while avoiding the losses. Many investors lost money in trading as SAC was able to use the information for their own and investors benefit.

The judge further narrowed the litigation through the reduction of the range of trade dates applicable to one of the three claims in the said case. He also dismissed the claim of Martoma and Gilman on their petitions presented to the court.

The claim of SAC in their motion stated that ‘contemporaneous traders are not harmed by insider trading.’ It further stated that it had already surrendered the illegal gains by agreeing to the USD602 million settlement with the SEC. This agreement though was blocked by the judge, saying that it did not require SAC to admit or deny any fault in the issue. He also required that there is a need to establish to a ‘scientific truth’ what SAC’s windfall was and its consequent liability. The judge further added that it was unclear if investors had sufficient time after the results of the findings were released to prevent further losses on their investments.

Martoma’s lawyers could not be reached. Other lawyers, namely for Gilman commented, “We will continue to press forward and defend the civil suit.”

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