Securities and Exchange Commission v. CR Intrinsic Investors, L.L.C. et al, No. 1:2012cv08466 - Document 59 (S.D.N.Y. 2014)
Court Description: OPINION DECISION AND ORDER: that the Court grants approval of the Final Judgment as to Defendant CR Intrinsic Investors, LLC; the Final Judgment as to Relief Defendant CR Intrinsic Investments, LLC; the Final Judgment as to Relief Defendant S.A .C. Capital Advisors, LLC; the Final Judgment as to Relief Defendant S.A.C. Capital Associates, LLC; the Final Judgment as to Relief Defendant S.A.C. International Equities, LLC; and the Final Judgment as to Relief Defendant S.A.C. Select Fund, LLC. (Signed by Judge Victor Marrero on 6/17/2014) (tn)
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~l:Snc s:i;~~'~'=:-== I l UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK -----------------------------------X SECURITIES AND EXCHANGE COMMISSION,: DOCC\1L:\T El.. ECTRO:\ICALLY f. DOC #: _ -.. l-ff.-JI-:-H--t-;~ nLl~D t:<\~E FIlED_ Plaintiff, 12-cv-8466 (VM) against CR INTRINSIC INVESTORS, LLC, MATHEW MARTOMA, and DR. SIDNEY GILMAN, Defendants, OPINION and DECISION AND ORDER 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, Relief Defendants. -----------------------------------X VICTOR MARRERO, United States District Judge. By Decision "Conditional and Order Approval dated Order" ) , April 15, 2013 the Court (the 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, Capital LLC; Associates, S.A.C. LLCi Capital S.A.C. Advisors, LLCi International S.A.C. Equities, LLCi and S.A.C. Select Fund, LLC {collectively, the "Relief 1 Defendants") . 939 F. Supp. See S. E. C. 2d 431, 444 v. CR Intrinsic Investors, (S.D.N.Y. consent Judgment indicated that judgment corresponded 2013). Each Proposed the defendant consented to LLC, to whom the entry of judgment against it "without admitting or denying the allegations of the Complaint . Approval Order, judicial If was In the Conditional the Court noted that review provisions Id. at 433-34. of the these subject pending Second Circui t the proper scope of "neither of much appeal. Id. admit nor debate, at denyff including 434. It was a the Court's view that "[t] he Second Circuit's ultimate decision in the [pending] case must have some bearing Court treats the issue now before it. Id. If in how the 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. The Second Circuit Citigroup on June 4, Markets, Inc. (L) I Cir. June 4, 2014). now that request handed 2014. (Citigroup IV), ll-S37S-cv (con), the 1f Id. down See S.E.C. v. --- F.3d 11-S242-cv (xap), its enter Judgments. 2 in Citigroup Global Nos. 11-S227-cv 2014 WL 2486793 In light of Citigroup IV, Court decision their (2d the parties Proposed Consent Subsequent developments since Condi tional Approval Order two parallel facts as defendant criminal this case, S .A. C. ("Martoma" ), notably, cases that one against date the arose of the resolution of out of the same CR Intrinsic and relief Capital Advisors, and another against the L. P. ("SAC Capital"), CR Intrinsic employee Mathew 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. I. BACKGROUND The Court Conditional filed an "Amended assumes Approval Amended familiarity Order. Briefly Complaint Complaint"), with dated which restated, March alleged its 15, that CR prior the 2013 SEC (the 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 illegal profits or avoided losses. (Dkt. $275 No. million 25.) in The Amended Complaint also alleged a claim of unjust enrichment 3 against the Relief Defendants, which, according to the SEC, (Id. ) directly benefitted from the insider trading scheme. On the same day that the Amended Complaint was filed, the SEC provided (Dkt. Judgments. the No. Court 30.) with the Proposed Each of the Consent Proposed Consent Judgments provided for injunctive relief and damages: enjoined each defendant of federal from committing future securities laws, violations and required them to disgorge their alleged wrongful profits civil penalty. they (plus interest) and pay a In total, CR Intrinsic was held jointly and severally liable for over $600 million in wrongful profits, penalties, and each held jointly and that amount. interest, and the severally Relief liable Defendants for a were portion of 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 also filed a the [Amended] statement Complaint. from each defendant entry of the Proposed Consent Judgments. each provided the entry of that the The SEC II respective judgment against denying the allegations of the (Id. ) 4 it consenting to Those statements defendant consented to "[w] ithout admitting or [Amended] Complaint . . . II The Court consider the held a hearing Proposed on Consent March 28, Judgments. 2013, Both at to the hearing and in its subsequent Conditional Approval Order, the Court indicated that the injunctive and monetary relief embodied in adequate, the Proposed reasonable, and Consent in Judgments the public was "fair, interest." CR Intrinsic, 939 F. Supp. 2d at 435. At the same time, the Court expressed its concern over the use of the "neither admit nor deny" provisions in the Proposed Consent Judgments. that those provisions were the-mill cases. Id. Id. at 436. sensible in ordinary, But, at 437. The Court noted run-of in the Court s view, I this litigation was extraordinary for at least two reasons: first, this action against Martomai involved second, admitted liability, parallel it had agreed, promptly upon the SEC's to forfeit virtually all damages that the SEC had sought. struck by a sophisticated wrongdoing swift that acceptance penalties of of Id. at 440. seeming contradiction: defendants flies capitulation, in and the that face staggering 5 of appears to a they claiming responsibility such charges even though CR Intrinsic had not filing of the Amended Complaint, was criminal declaration by committed their at The Court unusual odds with pay disgorgement amounts. rd. no and their and While recognizing that courts are, give deference interest,'" to see [the id. in general, SEC's] at 443 "'bound. assessment of (alteration to the in public original) (quoting S.E.C. v. Citigroup Global Markets, Inc., 673 F.3d 158, 168 (2d Cir. 2012)), the Court also suggested that "courts must bring to bear enhanced scrutiny in reviewing proposed consent alleging judgments in certain extraordinary cases extraordinary recognition of public and private their particular importance harms, to in the public interest," id. at 444. However, the Court recognized that a district court's role in approving settlements containing "neither admit nor deny" provisions was unclear in light of the then-pending appeal in Citigroup IV. Id. The Court determined that the ultimate outcome of the Citigroup IV appeal "must have some bearing" on the Court's decision of whether to approve the Proposed Consent Judgments. The Id. Court thus conditioned its approval on the Second Circuit's decision in that case. Now, Id. following the parties have the Second Circuit's renewed their request approve the Proposed Consent Judgments. recent for opinion, the Court to They suggest that Citigroup IV prohibits the Court from refusing to approve a consent judgment merely because 6 the defendant neither admits nor denies light of that the allegations ruling, the in the complaint. parties argue, the In Court's previous finding that the Proposed Consent Judgments were fair and reasonable necessarily requires the Court to approve the judgments. II. LEGAL STANDARD citigroup IV clarified the standard that district courts should apply in their review of consent judgments between the SEC and a defendant: Today we clarify that the proper standard for reviewing a proposed consent j udgment involving an enforcement agency requires that the district court determine whether the proposed consent decree is fair and reasonable, with the additional requirement that the public interest would not be disserved in the event that the consent decree includes injunctive relief. Absent a substantial basis in the record for concluding that the proposed consent decree does not meet these requirements, the district court is required to enter the order. Citigroup IV, 2014 WL 2486793, at *7 (citation and internal quotation marks omitted). previously applied by this Contrary Court to the and others, standard the Second Circuit declared that the adequacy of a settlement was no longer a consideration that a district court should weigh in analyzing a proposed consent judgment. The Circuit Court laid out four Id. factors that a district court "should, at a minimum, assess" to determine whether a proposed consent judgment is fair and reasonable: 7 (1) the basic legality of the decree: (2) whether the terms of the decree, including its enforcement mechanism, are clear: (3) whether the consent decree reflects a resolution of the actual claims in the complaint; and (4) whether the consent decree is tainted by improper collusion or corruption of some kind. Id. (citations omitted). While noting that some cases may require "additional inquiry,,,l the Second Circuit held that "the primary focus of the inquiry should be ensuring the consent decree is procedurally proper" on "objective measures" that do not "infringe on based on the S.E.C.'s discretionary authority to settle on a particular set of terms. Similarly, Id. It when considering whether any injunctive relief would disserve the public interest, find the public interest the district court "may not disserved based decisions on deciding to liability. It The district on its disagreement discretionary settle matters without with of requiring the policy, an S.E.C.'s such as admission of Id. at *9. Second court Circuit should outlined not two consider in factors its that a evaluation. First, the court may not require the SEC to prove facts to establish the truth of its allegations. Id. at *8. While the court should "establish that a factual basis exists for In a concurring opinion, Judge Lohier offered his view that a court should conduct "a straightforward analysis of only the four factors" listed in the majority opinion. Citigroup IV, 2014 WL 2486793, at *11 (Lohier, J., concurring) (emphasis in original). 1 8 the proposed decree," in general the parties can meet this requirement by "setting out the colorable claims, supported by factual averments by the S. E . C., denied by the wrongdoer [ . ] " however, require proposed a consent more Id. concrete agreement Second, the district The district court may, factual when collusion between the parties. neither admitted nor it basis for suspects the improper Id. court should not base its decision on a determination of whether the SEC brought the proper charges against the defendant. " [t] he against exclusive a right defendant to choose Id. at *10. which rests with the Rather, charges S . E. C. " to levy Along Id. similar lines, a district court cannot decline to approve a consent judgment "on the ground that it fails to provide collateral estoppel assistance to private litigants." Id. III. DISCUSSION The Court is persuaded that, at this time, each of the Proposed Consent Judgments is fair and reasonable under the factors outlined in Citigroup IV. The Proposed Consent Judgments are legal and clear, and they resolve the claims in the Amended 2486793, at suggest that Complaint. *7. the There See Citigroup is no evidence agreements are 9 in the "tainted collusion or corruption of some kind." IV, Id. by 2014 WL record to improper The Court thus reaffirms Proposed its earlier Consent statement Judgments are that the "fair" and See CR Intrinsic, 939 F. Supp. 2d at 435. conclusion, of the "reasonable." In light of that the Court "is required to enter" the Proposed Consent Judgments. Citigroup IV, 2014 WL 2486793, at *7. In making this determination, and terms deems it appropriate to the Court is mindful of call attention to how circumstances have changed since it issued the Conditional Approval Order. CR Intrinsic First, the criminal trial of defendant and employee Martoma, which was time of the Conditional Approval Order, 939 F. Supp. 2014, a 2d at 440, jury securities Martoma on fraud grounded on charges the see CR Intrinsic, is now complete. convicted pending at On February 6, three counts of unlawful of conduct arising out of the same transactions and events involved in the instant case. See Martoma, 12-cr-973 (PGG) Second, issued, criminal after the the civil Form, United States v. (S.D.N.Y.), Dkt. No. 230. Government and Verdict Conditional brought forfeiture Approval and Order resolved proceedings was related against CR Intrinsic and affiliated entities, including SAC Capital. Both same cases conduct concern, that is the in part, subject the of the alleged Amended unlawful Complaint: trading stock in Elan Corporation, plc, and Wyeth based on 10 material nonpublic information. No. ~ 25, 1-7, with Compare Am. Indictment, Compl., United States Capital Advisors, L.P., et al., 13-cr-541 (LTS) v. Dkt. S.A.C. (S.D.N.Y.), Dkt. No. 1, ~ 31(a}, and Complaint, United States v. S.A.C. Capital Advisors, L.P., et al., 13-cv-5182 (RJS) (S.D.N.Y.), Dkt. No. 1, ~ 31(a}. In a global disposition of those two cases, CR Intrinsic and its codefendants guilty to securities fraud and wire fraud, pled admitted to the forfeiture allegations, and agreed, among other conditions, to surrender $1.8 billion to the Government forfeiture. See (E.D.N.Y. 2012) acquittals in S.E.C. v. (approving related Semiconductor Corp., (approving Cioffi, consent consent criminal 771 868 F. judgment in Supp. judgment case) Supp. F. in fines 2d 304 light 2d 65, 74 light of in S.E.C. i v. Vitesse (S.D.N.Y. of and 2011) convictions in related criminal case) . In that a its conviction establish action Conditional facts does not Approval in Martoma' s of wrongdoing expressly Order, case that Supp. 2d at noted a settlement an acknowledge II in to its reluctance Proposed Consent Judgments at that time. 11 this incongruity CR Intrinsic, The Court's concern about 440. incongruity contributed Court "would presumptively obvious to even the most casual observer. 939 F. the to See this approve id. i id. the at 443. But the guilty verdict in Martoma's case and the guil ty plea in CR Intrinsic's own criminal case have cast the SEC's action "neither in admit a in wrongdoing different a nor deny" light: civil case, settlement while these in presumably defendants this denying have been convicted of criminal offenses based on a prosecution for the same conduct and resting on a full factual record and application of the most rigorous evidentiary standard. As a SEC's matter of policy, filing Court's served of decision a its to Proposed application settlements of more of It "neither embodying those has rigorous the delay between the Consent approve purpose. importance then, Judgments judgments called inquiry admit the nor and the today has attention by the deny" exceptional SEC to the in its provisions in circumstances presented by this action, specifically those where parallel criminal cases track an SEC complaint arising from the same facts. In such instances, and-see approach before there may be value in a waitrushing into a settlement and hurrying to a district court to seek approval of a proposed consent decree. Situations could arise, as might have been the case here, in which the outcome of a strong criminal case could strengthen the administrative agency's hand in achieving a settlement more favorable 12 to the public good and the interests of justice. Similarly, in some circumstances, a judge considering whether to enter such a proposed civil holding an consent decree approval should weigh the value of decision in abeyance outcome of the parallel criminal litigation. Gratsos, 790 F.2d 1050, 1057 (2d Cir. 1986) district outcome court of may criminal stay civil proceedings justice so require) . 13 proceedings when the pending the See Kashi v. (noting that a pending the interests of IV. ORDER For the reasons discussed above, it is hereby ORDERED that the Court grants approval of the Final Judgment as to Defendant CR Intrinsic Investors, LLCi Final Intrinsic Judgment as to Relief Defendant CR the Investments, LLCi the Final Judgment as to Relief Defendant S .A. C. Capital Advisors, LLC i the Final Relief Defendant S.A.C. Capital Associates, Judgment as Equities, to LLCi Relief and Defendant the Final S.A.C. Judgment Judgment LLCi as the Final International as to Relief Defendant S.A.C. Select Fund, LLC. SO ORDERED. Dated: New York, New York 17 June 2014 ictor Marrero U.S.D.J. 14 to
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