United States District Court, S.D. New York
Decided: June 17, 2014.
For Securities and Exchange Commission, Plaintiff: Amelia Anne Cottrell, Charles D. Riely, Securities and Exchange Commission (NYC), New York, NY; Matthew James Watkins, Securities & Exchange Commission (3 WFC), New York, NY; Sanjay Wadhwa, U.S. Securities and Exchange Commission(3 World Financial), New York, NY.
For CR Intrinsic Investors, L.L.C., Defendant: Daniel Jonathan Kramer, Michael E. Gertzman, LEAD ATTORNEYS, Paul, Weiss, Rifkind, Wharton & Garrison LLP (NY), New York, NY; Martin B Klotz, Michael Steven Schachter, LEAD ATTORNEYS, Willkie Farr & Gallagher LLP (NY), New York, NY.
For Mathew Martoma, Defendant: Charles A. Stillman, LEAD ATTORNEY, Nathaniel Z Marmur, Scott M. Himes, Stillman, Friedman & Shechtman, P.C., New York, NY.
DECISION AND ORDER
VICTOR MARRERO, United States District Judge.
By Decision and Order dated April 15, 2013 (the " Conditional Approval Order" ), the Court granted conditional approval of six proposed consent judgments (the " Proposed Consent Judgments" ): one between plaintiff United States Securities and Exchange Commission (the " SEC" ) and defendant CR Intrinsic Investors, LLC (" CR Intrinsic" ), and one each between the SEC and relief defendants CR Intrinsic Investments, LLC; S.A.C. Capital Advisors, LLC; S.A.C. Capital Associates, LLC; S.A.C. International Equities, LLC; and S.A.C. Select Fund, LLC (collectively, the " Relief Defendants" ). See S.E.C. v. CR Intrinsic Investors, LLC, 939 F.Supp.2d 431, 444 (S.D.N.Y. 2013). Each Proposed Consent Judgment indicated that the defendant to whom the judgment corresponded consented to entry of judgment against it " without admitting or denying the allegations of the Complaint . . . ." Id. at 433-34. In the Conditional Approval Order, the Court noted that the proper scope of judicial review of these " neither admit nor deny" provisions was the subject of much debate, including a pending Second Circuit appeal. Id. at 434. It was the Court's view that " [t]he Second Circuit's ultimate decision in the [pending] case must have some bearing in how the Court treats the issue now before it." Id. at 444. The Court thus conditioned its approval of the Proposed Consent Judgments " upon the disposition of the pending appeal in the U.S. Court of Appeals for the Second Circuit in
S.E.C. v. Citigroup Global Markets, Inc." Id.
The Second Circuit handed down its decision in Citigroup on June 4, 2014. See S.E.C. v. Citigroup Global Markets, Inc. (Citigroup IV), 752 F.3d 285, Nos. 11-5227-cv (L), 11-5375-cv(con), 11-5242-cv(xap), 2014 WL 2486793 (2d Cir. June 4, 2014). In light of Citigroup IV, the parties now request that the Court enter their Proposed Consent Judgments.
Subsequent developments since the date of the Conditional Approval Order -- notably, the resolution of two parallel criminal cases that arose out of the same facts as this case, one against CR Intrinsic and relief defendant S.A.C. Capital Advisors, L.P. (" SAC Capital" ), and another against CR Intrinsic employee Mathew Martoma (" Martoma" ), who is also a co-defendant in
this case -- bear strongly on the issue as it is now before the Court. In view of these circumstances, the Court is persuaded that Citigroup IV controls the disposition of the open issue in this action, and compels the Court's approval of the Proposed Consent Judgments on the terms the parties agreed upon.
The Court assumes familiarity with its prior Conditional Approval Order. Briefly restated, the SEC filed an Amended Complaint dated March 15, 2013 (the " Amended Complaint" ), which alleged that CR Intrinsic participated in an insider trading scheme that caused hedge fund portfolios managed by CR Intrinsic and S.A.C. Capital Advisors, LLC to generate approximately $275 million in illegal profits or avoided losses. (Dkt. No. 25.) The Amended Complaint also alleged a claim of unjust enrichment against the Relief Defendants, which, according to the SEC, directly benefitted from the insider trading scheme. (Id.)
On the same day that the Amended Complaint was filed, the SEC provided the Court with the Proposed Consent Judgments. (Dkt. No. 30.) Each of the Proposed Consent Judgments provided for injunctive relief and damages: they enjoined each defendant from committing future violations of federal securities laws, and required them to disgorge their alleged wrongful profits (plus interest) and pay a civil penalty. In total, CR Intrinsic was held jointly and severally liable for over $600 million in wrongful profits, penalties, and interest, and the Relief Defendants were each held jointly and severally liable for a portion of that amount. The Proposed Consent Judgments indicated that CR Intrinsic and the Relief Defendants consented to entry of judgment against them " without admitting or denying the allegations of the [Amended] Complaint." (Id.) The SEC also filed a statement from each defendant consenting to entry of the Proposed ...