Securities and Exchange Commission v. CR Intrinsic Investors, L.L.C. et al, No. 1:2012cv08466 - Document 33 (S.D.N.Y. 2013)

Court Description: OPINION DECISION AND 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, LLC, the Final Judgment as to Relief Defendant CR Intrinsic Investments, LL C, 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, conditioned upon the disposition of the pending appeal in the U.S. Court of Appeals for the Second Circuit in S.E.C. v. Global Markets, Inc., 11 Civ. 7387 (S.D.N.Y.). (Signed by Judge Victor Marrero on 4/15/2013) (js)

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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK -- -- -- --- -- -- --- --- --- --X SECURITIES AND EXCHANGE COMMISSION, : Plaintiff, 12 Civ. 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 Defendan ts. --­ -----­ --­ --­ --­ --­ -­ -X VICTOR MARRERO, United States District Judge. On November 20, 2012, the United States Securities and Exchange Commission (the "SEC") defendants Mathew CR Martoma (collectively, of the Act") , Intrinsic 15 and § 17(a) of the "Securities Act"), 15 U.S.C. and Act 78j (b) 17 ("CR Intrinsic"), Sidney Gilman alleging violations of Exchange U.S.C. § LLC ("Martoma" ) , promulgated thereunder, 5"), Investors, "Defendants") Securities brought this action against of ("§ C.F.R. § 1934 10 (b)"), Act of 77q ("§ 17(a)"). 1 10 (b) "Exchange Rule 240.10b-5 Securities § (the § ("Rule 1933 10b-5 lOb (the On March IS, in this 2013, action Complaint (the alleged insider trading managed by CR the SEC filed an amended complaint "Amended that CR scheme Intrinsic caused hedge and S.A.C. Capital to generate also contained fi ve reI (b) f a new S.A.C. Capital; S.A.C. claim defendants: (a) of in Advisors, LLC million in The Amended Complaint unjust enrichment against CR Intrinsic Investments, Equities, an portfolios S.A.C. Capital Associates, (c) International fund approximately $275 illegal profits or avoided losses. Amended participated that Intrinsic ("SAC Capital") The Complaint"). LLCi and (e) LLCi S.A.C. LLC; (d) Select Fund, LLC (collectively, the "Relief Defendants") . That same day, its approval a Investors, together Investors, that CR "Final Judgment As To Defendant CR Intrinsic LLC" with LLC" the SEC also submitted to the Court for (the a "CR "Consent (the Intrinsic allegations Consent ~ 2. "permanently of consented 5 promulgated the The Defendant CR § to the Judgment"), CR Intrinsic that provided entry of Intrinsic and " Consent enjoined" CR CR CR and 2 § 17 Ca) of Intrinsic Judgment: Intrinsic 10(b) of the Exchange Act, thereunder, the "[w] i thout admitting or denying Complaint restrained future violations of of Consent "CR Intrinsic Consent") Intrinsic Consent Judgment the Intrinsic the (a) from Rule lOb Securities Act i (b) required CR Intrinsic, on basis with the Relief Defendants, $274,972,541, representing the a j oint and several to disgorge to the SEC profits gained and losses avoided of CR Intrinsic and the Relief Defendants, together with pre judgment interest of $51,802,381.22; required CR Intrinsic to pay to the SEC a c and (c) I penalty the amount of $274,972,541. The SEC also submitted to the Court for its approval: (1) a "Final Judgment as to ReI Investments, Defendant Judgment LLC," LLC," CR as together Intrinsic Capital Advisors, LLC" with a Defendant LLC"i S.A.C. "Consent of ReI i (3) LLC" i of (4) a ReI Defendant Relief a "Final (2) Capital Advisors, Defendant S.A.C. LLC," together with a S.A.C. Capital Associates, "Final Judgment as to Relief Defendant S.A.C. International Equities, Relief Defendant (5) of a "Final Judgment as to Relief Defendant S.A.C. Capital Associates, "Consent "Consent Investments, to Relief together wi th a Defendant CR Intrinsic S.A.C. LLC," together wi th a "Consent of International Equities, LLC" i and a "Final Judgment as to Relief Defendant S.A.C. Select Fund, LLC, S.A.C. II together with a Select Fund, Defendant Consent Consents respectively). ll "Consent of Relief Defendant LLCII (collect Judgments" The 3 and the Relief the "ReI Defendant "Relief Defendant Consents provide that the Relief Defendants consent to the entry of the or admitting Consent II See, e.g., CR Intrinsic Investments, Judgments jointly and severally Intrinsic's disgorgement of the Consent of Relief Defendant ~ LLC, provide "[w]ithout legations denying Complaint Consent Judgments the Defendants Relief that The Relief Defendant 2. the liable Relief Defendants certain portions figure, as well as are of the CR pre­ judgment interest thereon. Upon receipt of these submissions, the Court, by Order dated March 22, 2013, scheduled a parties, which was held on March 28, proposed settlements recently by some conference 2013, and to discuss courts in the reviewing with the to consider the issues raised regulatory agency settlements containing "neither admit nor deny" provisions such as the Court, for example Markets, Inc. , 827 F. (S.D.N.Y.2011) ("Citigroup I"), which before the U. S . Court of Appeal s Citigroup those before Global for is S.E.C. Supp. 2d now on v. 328 appeal the Second Circui t . See S.E.C. v. Citigroup Global Mkts. Inc., 673 F.3d 158 (2d r. 2012) ("Citigroup 11") . I. The proposed role of consent the LEGAL STANDARD Court judgments in in 4 SEC reviewing and enforcement approving actions is "restricted to assessing whether the settlement is fair, reasonable and adequate within the limitations Congress has imposed on the SEC to recover investor losses. Cioffi, 868 v. 2012) a Supp. 2d 859 Peterson 65, F. 74 Supp. (E.D.N.Y. 2d 2012); 477, 478 United (E.D.N.Y. ("A district court has the duty to determine whether consent and F. S.E.C. v. II decree based on a reasonable.' ") (quoting proposed settlement S.E.C. v. Wang, is 'fair 944 F.2d 80, the proposed 84-85 (2d Cir. 1991)). Courts settlement interest. 1 should also weigh in an Courts SEC the enforcement "are bound effect action such of on the matters public to give To what degree a court may weigh the effect of the proposed consent judgment on the public interest "has recently been the subj ect of debate in the Second Circuit." Cioffi, 868 F. Supp. 2d at 72. On several occasions, Judge Rakoff of this district has described the standard for judicial review and approval of proposed consent judgments in SEC enforcement actions as "whether the proposed Consent Judgment . is fair, reasonable, adequate, and in the public interest. Citigroup I, 827 F. Supp. 2d at 330-31 (quoting S.E. v. Bank of Am. Corp., 653 F. Supp. 2d 507,508 (S.D.N.Y. 2009) (Rakoff, J.»i see also S.E.C. v. Vitesse Semiconductor Corp., 771 F. Supp. 2d 304, 306-07 (S.D.N.Y. 2011). However, the Second Circuit indicated in Citigroup II that Judge Rakoff "misinterpreted" the rulings on which he relied for this proposition. Citigroup II, 673 F.3d at 166. The Second Circuit indicated that those rulings stood only for the proposition that a court, when ordering injunctive relief, should ensure that the injunctive relief, as opposed to the proposed settlement as a whole, "does not cause harm to the public interest." Id. Nonetheless, the Second Circuit then proceeded to consider the effect of the proposed settlement, as a whole, in that SEC enforcement action on the public interest. Compare 673 F. 3d at 168 ("The final factor to be considered is interest."), with at 163 ("The responsibilities for . resolving the struggle between competing views of the public interest are not judicial ones.") (citations omitted); see Federal Trade Comm'n v. Circa Direct LLC, Civ. No. 112172, 2012 WL 3987610, at *4 (D.N.J. Sept. 11, 2012) ("Because the Court's approval of the Stipulated Order signals its approval of the Stipulated Order as a whole, it naturally follows that it must retain 1 II 5 the public deference to an executive agency's assessment This does not mean that a court must necessarily interest. It does rubber stamp all arguments made by such an agency. ect the agency's mean at least that a court should not assessment without substantial reason for doing so," such as a finding that the proposed settlement was "arbitrary, capricious, an abuse of accordance with the law. or otherwise discret Cit /I (internal citations omitted) II, -'-'---=-.:~-'-'---"-"'----=-.:=- i fi, ---- not in 673 F.3d at 168 868 F. Supp. 2d at 74 ("A district court is surely not required to rubber stamp every settlement between the SEC and a defendant./I) In assessing enforcement action, a proposed a court settlement should also in an consider, SEC among other factors: the connection between the settlement and any related pending or prospective criminal or civil cases. The same defendant may subject to multiple obligations, including the need to pay restitution to victims of his criminal conduct; private civil damages as a result of breach contract or tortious activities; fines; and to the government in both criminal and Peterson, 859 F. Supp. 2d at 478-79. the ability to review all terms that comprise the settlement for including its lack of an consistency with the public interest, .") . admission of liabil 6 II. The CR Intrinsic DISCUSSION Consent Judgment and f the Defendant Consent Judgments consist of two types of relief: (a) injunctive and Judgment and the (b) Relief Defendant Consent Judgments admitting Amended consent or to denyingll the the proposed judgments allegations \\without contained CR Complaint. also and the Relief contain terms that provide that CR Intrins Defendants ic Consent The CR Int monetary. in c the Consent Judgment, 1. With respect to the injunctive CR Intrinsic this Consent component of Judgment, the the Court proposed Court hesitates from attaching injunctive relief component," as prohibiting Exchange Act [CR Intrinsic] from concludes settlement adequate, reasonable, and in the publ the contained in the i \\undue fair, J.s interest. that However, weight to the is \\largely limited to conduct Act] and the future that [the ready prohibit [] . It Federal Trade Comm'n v. Circa Direct LLC, Civ. No. 11-2172, 2012 WL 3987610, at *5 (D.N.J. Sept. II, 2012) ("Circa IIII) (emphasis in original) . to the monetary reI ief With concludes disgorgement that interest thereon l amount, I the Court the pre-judgment and the civil penalty is fair 7 so l adequate, reasonable, Complaint, and in the public the Amended the SEC has alleged approximately $275 million in illegal profits or avoided losses. Pursuant In interest. to the CR Relief Defendant Relief Defendants disgorgement Intrinsic Consent of are the See Am. Compl. Consent Judgments, jointly entire and the Intrinsic and the liable for profits or severally alleged 1. Judgment CR and ~ illegal avoided losses, together with pre-judgment interest, and CR Intrinsic is equal the to responsible amount for the of an additional alleged civil illegal penalty profits or avoided losses. Of course, illicit how the SEC arrived at its calculation of profits debate. and losses avoided may be a matter of Reasonable experts may differ on such technical questions about assumptions and methodology. What is clear to the Court in this regard is that it lacks a legitimate basis terms, either or to to question adjudge the the adequacy the decision SEC's of to monetary end litigation for these sums as irrational or arbitrary. the The monetary relief here is significant and proportional to the sums allegedly at Judge issue; it Rakoff characterized proposed settlement of does not Citigroup action now the on as resemble "pocket change" SEC enforcement appeal 8 in the the amount in the action in the Second Circuit. Citigroup I, 827 F. Supp. 2d at 334 (commenting in part on the disparity between the SEC's $95 million civil penalty and the alleged illicit profits of $160 million). However, Court the must consider also the appropriateness of the "neither admit nor deny" provisions contained in the CR Intrinsic Consent Relief Defendant Consent Judgments. as by these provis Relief Defendants against them "without or admitt Whether or See, not resolution these settlement denying CR Intrinsic the massive the and the serious insider the ions trading allegations scheme of the CR Intrinsic Consent Judgment, a court reviewing a regulatory 1. agency's civil proceedings may question the propriety types on of this provisions and ground presents Second before a and The Court is troubled they permit resolve involving Complaint./I of to Judgment Circuit, within weeks or months. See ect an issue whose ision ---""----=-­ a proposed now pending is expected , 673 F.3d 158. The absence of controlling appellate guidance at this time, combined with the imminence of a resolution of the issue by quandary Court. comment. the Second Circuit, a for this Among the courses of action open to it, three merit The Court could close its eyes and pretend that the pending appeal does in 9 not exist. As part urge settlement "nei ther were Court/s misgivings clause. If then to rule to definitively that reject the settlement question on foreclose how the rigorous regulatory the about Second Circuit district courts lack account of along with Second however I such s approval for this Court to I Circuit and to assume that l proposed would be put to rest. I It would be presumptuous speculate I the on settlements this Court/s concerns I the nor denyll admit provisions endorse the despite authority could Court the I would on the decision will conclusively inquiry by district settlement rule agreements. courts into is It these just as conceivable that the Second Circuit/s resolution would not categorically curtail such scrutinYI but rather leave room for the lower courts to exercise discretion within bounds of specified Court I S appellate approval would prove missed the circumstances of guidance. In that the proposed settlement premature insofar I as opportunity to assess presented here would the event at Court whether satisfy I this would or any this t have not the standards the Second Circuit would prescribe to govern such review. ConverselYI the Court could ignore Citigroup and reject the proposed settlement entirely on the basis of the provision in question. Such a 10 decision would be equally In that case, the ruling would run up against problematic. so the plausible outcome Second that Citigroup would reverse Citigroup I Circuit in and hold that such a denial would be impermissible. If Citigroup I had never happened, or if a resolution of its appeal were not so close at hand, Court describes circumstances, to it would condition above would not the dilemma the exist. Under the the most prudent course the Court sees open be that to it approve would the become settlement final subj ect upon to a a definitive termination in the Citigroup appeal that dist courts lack authority to rej ect such settlements on basis of reservations about the "neither admit nor deny" provision. In the event district the courts Second Circuit does leave to accord higher scrutiny to the Court articulates below ground for such terms, concerns and considerations that it regards as pertinent to its review. In assessing the appropriateness of the "neither admit nor deny" provisions in and the ReI CR Intrinsic Consent Judgment f Defendant Consent Judgments, the Court must perform a very delicate balancing act, walking a tightrope between various competing interests. characterize It must recognize complexit that proceedings, the difficult policy calls, 11 government law enforcement and the expertise possessed by the administrative agencies entrusted with the responsibility the end, to Court protect must the avoid public undue To interest. meddling and this second- guessing, and must accord government agency law enforcement and financial determinations such as those now before it At the same the proper level of deference they are due. time, the Court cannot conceive that Congress intended the judiciary's function in passing upon these settlements as illusory, as predetermined a rubber stamp any settlement put before it by an administrative agency, even a prosecutor. Court's intent these Such a would make a minimalist mockery in delegating approval matters and cramp conception of out of authority to judicial or the Congressional the courts independence in in this context. The parties "neither admit settlements of have stressed nor civil deny" that the provisions proceedings is a inclusion in regulatory longstanding and commonplace practice routinely pursued not only by the SEC, but by many other federal agencies. Tr., Mar. that, across 28 , 2 0 13 , historically, the country, at 10 :10 20 . courts in recognizing See, e.g., Conference They have pointed out this the district sound and others practical and policy reasons warranting such a provision, have regularly 12 approved such agreements without questioning the inclusion See, of "neither admit nor deny" provisions. 10:21-11:2; 2, Dkt. see also CR Intrinsic Letter, No. Additionally, 32. Court has acknowledged above, the branch executive they id. at Apr. 4, 2013 at emphasize, as that a decision by a body of of federal the government, particularly agencies possessing special expertise, an enforcement administrative this action to end represents a prerogative that lies outside the ambit of the function of the judiciary, embodied in controlling doctrine requiring that courts accord due deference to such policy judgments. See, e.g., Intrinsic Conference Tr., Letter, Apr. 4, Mar. 28,2013 2013 at 2, at 11:16-19; Dkt. No. 32. CR The Court agrees with these salient arguments. However, impli t in the parties' arguments is the premise that because the Court must accord deference to an administrative agency's special competence to commence and resolve administrative traditionally courts have proceedings, not questioned and because settlements of civil enforcement actions that contain "neither admit nor deny" provisions, therefore no circumstances exist in which enhanced judicial scrutiny, or perhaps even rejection, of a proposed consent judgment containing such a provision would be appropriate. In essence, the parties are telling the 13 Court that assessing the appropriateness of the inclusion of these "neither admit nor deny" provisions in Whether particular action is none of the Court's business. veiled explicit, such deference due or judicial determinations, suggesting a hard line overstates to administrative form a this of absolutism the policy that is unwarranted by law or reasonable public policy. If courts inclusion that actions, fitting would not chall enged upon perhaps this outcome circumstances have not compellingly intervention. led have the "neither admit nor deny" provisions in civil enforcement because traditionally justify that has obtained previously level of judicial It should come as no surprise that routinely "cats and dogs" to resolve cases of the arisen judges domestic variety would take special note when the elephant is first dragged into the courtroom. Nor should it startle anyone if among the questions the court raises on such an occasion is whether the rules of law meant to adjudicate the issues presented by one type of case should be extended to atypical others, or be adjusted to properly ref the true nature of the beast. The Court recognizes there are circumstances, possibly even in the vast majority of cases, in which it is perfectly reasonable for parties to a regulatory proceeding 14 to agree to such a A government provision. regulatory agency and a defendant may deem it mutually advisable and for beneficial public and private enforcement Among wrongdoing. resources fully; the achieved; proceedings necessary level without the obvious to prosecute of vindication, the risks of an admission considerations and defend penalty, on to settle financial, practical, and public policy grounds civil and reasons, are: the of the action and deterrence loss weighed against the best the party might stand to gain from proceeding further with the action; exposure to liability from other lawsuitsi business disruptions and effects on good will. 2 For example, where the likely cost of litigation and the amount at stake are relatively comparable, parties may provision to avoid the undue expense with proving culpability at trial. must recognize admission any chance [of for that, for culpability] compromise" the SEC, agree to such a and risk associated In addition, \\[r]equiring would in most cases the Court an undermine with corporate defendants who face additional exposure from private lawsuits. Citigroup In addition, where all parties involved have limited access to crucial information about the events in question, it may be reasonable for the parties to agree to a monetary settlement of any potential claims related to the events without an admission of liability. However, here, the SEC has alleged detailed facts in the Amended Complaint regarding the specific acts underlying the alleged massive insider trading scheme. The alleged facts here are not shrouded in mystery. 2 15 II, 673 F.3d at In the run- 165. concerns are likely outcome, to reflecting a -the-mill case, produce fair a reasonably measure of these balanced proportionality, defensible for the parties and other pertinent interests. However, instances can and do arise should properly raise in which courts of scrutiny they accord to particular settlement agreements in particular situations. Earlier precedents disparity evident may have entailed recent in not cases between the the extreme size and speed of a settlement on the one hand, and the plausibility of an absence of wrongdoing on the other. Perhaps we 1 in a different era. the notion labeled "too big to fail" may be) some In this (or jail, as the case has gained currency throughout commercial markets, cynics the concept as code words encouragement by an accommodating public evade or ignore the rules, grand fraud, Perhaps, a too, industrial, as a free pass to license to deceive unsuspecting customers. in these modern times, new and legal patterns have merged that to counter these sinister attitudes. about meant a wink and a nod as cover for enhanced regulatory and, as appropriate, concerns when whether the 16 call for judicial oversight This prospect raises regulatory practices which have governed to date financial, and judicial I to reflect what new real ies to adequately protect the public Anyone who even superficially follows accounts interest. of demand current events entailing well-known scandals instance those involving extensive fraud or excess in the financial markets, environmental disasters, and hazardous consumer products - is likely to be impressed by a quality many of these events share: massive scale whose effects go well beyond mere matters of degree. A few other qualities about these events bear comment. In the world, perceptions pass and in the eyes of judgment on the public whose official actions, harmful conduct on the scale of the contemporary models ordinarily does not occur absent some form of wrongdoing; the victims suf cannot always be blamed on acts of God or the mischief of leprechauns. inj ured t and for others who For the people directly share an interest matters implicating broad public concerns, the just system embodied and punishment the damage cannot be in in these the purposes of compensation, deterrence, adequately satisfied, and there 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. si tuations, These impressions hold doubly true such as may apply in the case at hand, 17 in where strong evidence of circumstantially, loquitur, wrongdoing exists, or where at least as embodied in the doctrine of res ipsa the events are unlikely to have happened without substantial misconduct. In appropriate cases, referred actions consequences, to to they amounts of money, scope of the harmful be should in assessed be gauged by both profits and losses, are involved in their reach and here, ought Quantitatively, the vast two the ways. staggering that typically underlying wrongdoing that is alleged, ctims seriously injured worldwide, wi th huge numbers of correspondingly matched by the perceived outsized rewards the fenders damaging events seek behavior. should culpability be the to derive from Qualitatively, taken by the offending entail - the higher 1 outright abuse that s the the sheer conduct measure of magnitude presumptively of daring, manifest illicit and these of the would of risk-taking, tougher grades of of arrogance and greed, as well as cavalier disdain for victims and the public good alike. If true other a question that legislators, regulators, and policy-makers, as well as should closely examine wi thin the judges when respective warranted, domains these new circumstances highlight the challenge of framing 18 a fair, adequate, and reasonable response by all bodies of government interest entrusted against by such law with outsized protecting the public In malfeasance. this Court's view, and perhaps as also perceived by other judges who recently have declined to grant uncritical approval to "neither admit nor deny" provisions in proposed consent judgments for administrative enforcement actions, the uniquely financial harmful and fact industrial patterns market emerging scandals some of from should modern not thrown into the mix with the run-of-the-mill cases. so would overlook the distinctive features of be To do this new breed of cases that might require enhanced scrutiny, more careful review, and better tailored resolution. The question for the Court here is not whether consent judgment could ever be found to be fair, reasonable, "neither adequate, or in the public interest when it contains a admit nor deny" provision. Instead, the proper inquiry is whether the CR Intrinsic Consent Judgment the ReI r, f Defendant Consent Judgments are reasonable, and in the public interest given the specific view, there is involved in this case. here and adequate, circumstances and posture of this particular case. Court's a justify departing nothing ordinary about In the the fact s Rather, the circumstances presented from 19 the attitude of judi al laissez-faire, that has advocated by characterized may have been parties judicial settlements in the past, that the to review of its suitable scrutiny of this case in parties seriousness of the action, regulatory and recognizing that an approach for different the agreements proffered reflect to alleged times the injurious and The Court must different actions may not be fitting here. tailor this by the proportional acts and their substantial after-effects. Here, 2012. the SEC instituted this action on November 20, Less proposed than four settlement Defendants, as with embodied Judgment and Reli the Court, months later, the CR Intrinsic in the CR SEC and reached the Intrinsic a Relief Consent Defendant Consent Judgments now before and sought the Court's approval. The speed of the resolution reached was matched only by the immense sums of the proposed settlement disgorgement, penalties, in excess of $600 million in and interest representing essentially everything the SEC demanded and, much as the SEC might prevail at tri be able to recover if However, ReI Defendants as it were to despite this weighty monetary judgment to which they willingly consent, the arguably, ther admit CR Intrinsic and nor allegations contained in the Amended Complaint. 20 deny the In this Court's view, it is both counterintuitive and incongruous for defendants in this SEC enforcement action to agree to settle a case for over fraction of that amount, $600 million that would cost a say $1 million, to litigate, while simultaneously declining to admit the allegations asserted An outside observer viewing these against it by the SEC. facts could readily conclude that CR Relief Defendants essentially folded, Intrinsic and in exchange the for the SEC's concession enabling them to admit no wrongdoing. In this respect, particularly pertinent to the Court's concerns is proceeding. the pendency Martoma has of been charged wi th one conspiracy to commit U.S.C. and two 10 (b) of 371, violation of § promulgated thereunder, circumstances enforcement that the all are the of count of 18 securities Exchange Act arising out subject conduct Defendants. See fraud and Rule of the 10b-5 SEC's and that implicating some or all Indictment, in the very same action now before the Court, inherently entail Relief counts criminal in violation of securities fraud § related the civil almost of United the v. Martoma, 12 Cr. 973 (S.D.N.Y. Dec. 21, 2012), Dkt. No.7. The dismissal of charges against Martoma or his acquittal at trial could make the SEC's decision to include "nei ther admit nor deny" provisions in this act ion appear 21 reasonable. In Cioffi, the court explicitly weighed the fect of acquittals in the related criminal case in its decision to approve proposed consent enforcement criminal nor admit "neither the case, the safest as interest." Cioffi, 868 On the other hand, plea in the F. of the in SEC in the opted to pursue the public protecting means an acquittals reasonably SEC settlement provision deny" "In light action: judgments containing Supp. 2d at 74. a conviction at trial or a guilty related criminal case could establish facts potentially decisive to the SEC's allegations of wrongdoing in this enforcement action, thus rendering a premature judicial seal of approval on the "neither admit nor deny" provisions at issue here appear particularly pernicious. judgment in establish action the facts does not criminal of proceeding wrongdoing expressly that would a presumptively settlement acknowledge obvious to even the most casual observer. A an in this incongruity The pendency of this related criminal proceeding, which might be resolved at trial thus provides compelling reason in a matter of months, for the Court not to simply rubber stamp the CR Intrinsic Consent Judgment and the Relief Defendant Consent Judgments, a consideration which was not included among the 22 circumstances presented to the court in Citigroup I. See Citigroup I, 827 F. Supp. 2d 328. The SEC has pointed to another case in this district, S.E.C. v. Sigma Capital Management, (S.D.N.Y.), In Judgments. enforcement 13 Civ. the action Defendant Relief Capital, Sigma insider the and against ("Sigma Capital"), leging No. 1740 in urging the Court to approve the CR Intrinsic Judgment Consent LLC, which Sigma SEC Consent brought Capital a civil Management, LLC is an affiliate of CR Intrinsic, trading resulting losses avoided of $6.425 million. Sigma Capital Management, LLC, in illicit profits See Complaint, No. 13 Civ. and S.E.C. v. 1740 (S.D.N.Y. involved parallel Mar. 15, 2013). As in related this case, criminal Sigma Capital proceedings against certain individuals implicated in the SEC's allegations. one to such one individual, count of Jon Horvath conspiracy to violation of 18 U.S.C. fraud in violation of § § ("Horvath" ), commit institution of See Minute Entry, (S.D.N.Y. Sept. pled guilty fraud in 371 and two counts of securities 10(b) of the Exchange Act and Rule the SEC's civil United States v. 28, In fact, securities lOb 5 promulgated thereunder on September 28, to the key 2012). 23 enforcement Newman, A second 2012, No. prior action. 12 Cr. individual, 121 Michael Steinberg ("Steinberg"), was arrested and charged with one count of conspiracy to commit securities fraud in violation of 18 U.S.C. § violation of 371 and four counts of securities fraud in § 10 (b) of the Exchange Act promulgated thereunder on March 29, v. Indictment, and Rule 10b-5 See Superseding 2013. Newman, 12 No. 121 Cr. (S.D.N.Y. Mar. 29, 2013), Dkt. No. 230. Although Judge Harold Baer approved consent judgments in Sigma Capital, taking cognizance important that difference cautions --"'--­ of that against proposed the Court here, finds that between is this following Specifically, in Sigma action equivalent observer and civil and case Capital's let us igation costs, to settle the Sigma disgorge penalty, an an Sigma decision to forego incurring a substantial expense, assume, $1 million in 1 while there and reflexively footsteps. 's case, the $6.425 would objective different proposition from, million, appear to decision-maker a plus an reasonable as a very and arguably a more plausibly rational business decision than, CR Intrinsic's decision to forego spending, again let us assume, $1 million in litigation costs or even a proportional sum, in this action and disgorge penalty. $275 plus million, Though the part an equivalent c 1 point out that in these types 24 sk to both parties of incurring the of cases there may be expense associated with going uncertainty of prevailing, to trial because of the that circumstance might be true in an action where the litigation costs and the exposure from liability may persuasive is defendants have liability that be relatively concern in a But balanced. proceeding in which the essentially conceded practically faced, they the and how facts all pertaining the to the admission of wrongdoing they seek to avoid might very well be revealed in parallel actions in any event? The Court nonetheless takes note of Sigma Capital, although as it weighs whether to approve the CR Intrinsic Consent Judgment and Relief Defendant Consent Judgments in this action, CR the Court cannot fail to take note of seeing Intrinsic, separate through insider from that Intrins at another trading issue affiliate, scheme in the not involved in a materially different instant proceedings. That CR affiliates have been the subject of separate SEC enforcement actions for insider trading does not instill the Court with confidence that the package of monetary and injunctive deny" relief provision, combined with the as proposed here, effect. 25 "neither will admit nor have the desired In another case previously before Judge Rakoff, S.E.C. v. Vitesse (S.D.N.Y. Semiconductor the 2011) , containing court action, in part the have already admitted parallel criminal proceedings; not left to speculate their the truth them, charges here brought against for in an SEC guilt However, since Vitesse, the in the the public is of the essential they have already admitted those charges in another public forum. 310. "[Two guilty: consequently, about proposed related criminal case had already been resolved with pleas defendants] 304 defendants provisions because 2d certain individual two "neither admit nor deny" enforcement Supp. F. approved against judgments consent 771 Corp., SEC has II Id. modified at its pol icy so that proposed consent judgments may not contain "nei ther admit nor deny" charged have either related criminal provisions admitted violations. to where or See the been Edward convicted Wyatt, Admission of Guilt, Jan. 6, 2012, defendants N. Y. of S.E.C. Times, www.nytimes.com/2012/01/07/business/sec to­ change-policy-on-companies-admission-of guilt.html. Because CR defendants Intrinsic and the Relief Defendants in the related criminal proceeding, are not however, a plea of guilty by Martoma or his conviction at trial would not prevent the SEC, under this 26 policy, from submitting proposed consent judgments containing "neither admit nor denyll provisions. The Court approved the "neither admit Semiconductor defendant and I defendants I proceeding I had also notes deny" Corporation ("Vitesse") Vitesse that not provision pled as I unlike l guilty in a the court containing judgment consent proposed nor Vitesse, that to Vitesse corporate the individual the related criminal such a proceeding. nor was a defendant a In explaining its approval of the proposed consent judgment I the court wrote: As for Vitesse its contribution of $2.4 million in stock to the class action settlement fund in California, coupled with its $3 million penalty payment if the instant Consent Judgment is approved were agreed to in spite of the company/s current financial difficulties which has left it with a net operating cash flow for the year just ended of less than $1.5 million. No reasonable observer of these events could doubt that the company has effectively admitted the allegations of the complaint in the way that for a company is particularly appropriate: by letting its money do the talking. l I l I Vitesse l I 771 F. Supp. 2d at 310 (citation omitted) . While the Court agrees that I as in Vitesse difficult for the Court to see CR Int ic I l S here it is decision to hand over more than $600 million as anything other than an implicit admission of wrongdoing I the parallel civil action nonetheless remains unresolved. See 27 private S.A.C. Capital Advisors L,P' I To recover their losses No. 12 Civ. 9350 (S.D.N.Y.). I at best in part I I these allegedly defrauded investors must incur significant expenses over an extended period of time to establish Defendants' Government pending the precisely concerning has alleged related in criminal misconduct same both liability this proceeding The case. the that approval and of the the CR Intrinsic Consent Judgment and the Relief Defendant Consent Judgments in the SEC's enforcement action would therefore important, two produce potentially counterproductive fects. First, private f approval plaintiffs of the at this benefit time of a would deny resolution the that potentially could ease the burden of proving their case, prolong their litigation, could recover. to derive from CR Intrinsic any "collateral Consent Defendant Consent Judgments. at 334. "[A] diminish the amount they These allegedly defrauded investors would be unable the and estoppel Judgment Citigroup I, and assistance" the Relief 827 F. Supp. 2d consent judgment between a federal agency and a private corporation which is not the result of an actual adjudication of any of the issues. used as evidence corporation and in subsequent another party." 28 can not litigation Lipsky v. [sic] between be that Commonwealth ., United 551 F.2d (2d 893 887 1 In 1976) . the court concluded that such an arrangement the "leaves changed. I' 827 F. it the takes Supp. Second, 2d at 334. longer part short­ substantially investors defrauded to to the extent resolve the private ion, it imposes a heavier burden on the courts. lit must Court consideration where, as here, effects adverse these accord The serious they result from a policy or practice of the Government. The Court must take cognizance that by means of the proposed settlement I the parties resolve the issues and the narrow interests they deem essent to them. But these settlements do not always take adequate account of another interest ordinarily at stake as well: that of the public and its interest in knowing the truth in matters of major public concern. It is in part to ensure adequate consideration of public concerns in these settlements that courts are reasonableness, granted authority to and judicial approval to give effect to consent judgments. pass made upon a their prerequisite Part of the Court's reluctance to approve the proposed settlement here at this time is premised on the fact that settlement, especially a settlement on this order of magnitude, without an admission of liability, especially when 29 there are pending related criminal proceedings, important ("Only deprive matter of public concern, the truth of the 3987610 1 "would at *5; one [SEC's] thing is left they way can 771 certain: take on Circa II, II F. the Supp. an as 2012 WL 2d at public know whether the S.E.C.'s charges are true, a public, of an adjudication allegations. see also Vitesse, the will 309 never at least not in established by these proceedings.") . In sum, to place the reasonable grounds injunctive reI Under CR the s Intrins Consent Defendants agree penalty. of Consent Judgments, to The represented recovery CR disgorge profits or losses avoided l anticipated agreement provisions Defendant amount full the 2012 WL 2178705 1 an "the FTC recovery if it at *4 could proposed and settlement. Judgment and the Relief Intrinsic and the Relief all of the alleged illicit reasonably concluded that adequate it in (D.N.J. not monetary as well as an equivalent sum as SEC if the to assessment went Federal Trade Comm'n v. Circa Direct LLC 1 that in The Court recognizes that the SEC has proffered repeating. civil perspective principles already acknowledged above bear context, a Court's have of its trial. See Civ. No. June 13,2012) obtained had prevailed at 30 to trial") a this (recognizing better The 11-2172, monetary Court also recognizes that in many, if not most, cases, nor deny" provisions defendants, are essential to F.3d at 165 to "bound give deference assessment of the public interest." Chevron, at 168 Council, Inc. , U.S.A., 467 competing views of Inc. v. to in most [the SEC's] , 673 F.3d Natural Res. 866 673 The Court is ---=<-----&_­ 837, U.S. responsibilities for ones: II, ("Requiring such an admission would cases undermine any chance for compromise. ") . also corporate C~t:.igroup See to the bargaining table. bring ing private civil which are frequently also actions, "neither admit (1984) Def. ( "The resolving the struggle between the public interest are not judicial Our Constitution vests such responsibilities in the political branches. ") (internal In re Cuyahoga Equip. 1992) Corp., quotation marks 980 F.2d 110, omitted) 118 i (2d Cir. ("Appellate courts ordinarily defer to the agency's expertise and the voluntary agreement of the parties in proposing the settlement.")). However, the Court once again emphasizes that, while such deference is particularly appropriate in unexceptional cases, courts reviewing proposed extraordinary private must cases harms, in bring to bear consent alleging judgments extraordinary recognition 31 enhanced of their scrutiny in in certain public and particular importance to the public notwithstanding interest l the deference normally accorded the policy decisions of federal Courts administrative agencies. can and have brought to bear such enhanced judicial scrutiny to actions brought by the Government 1 including 1 in some circumstances 1 denying the Government/s to rejecting See the ted requests terms States of v. ~~~~~~~~~r~l~'e~1 ("After reviewing a civil 428 F. criminal settlement Nederlandsche N.V. the drop Supp. ent 1141 as Voor (S.D.N.Y. the l or inadequate. Combinatie 117 record charges 1977) has court determined that a dismissal of the indictment against Mr. Massaut is government 1 not S in 2131 public interest. motion to dismiss as and is denied. II) Civ. the ip 1 S.E.C. i op. at v. 1 to Mr. Therefore Massaut must Colo. Jan. 171 be LLC Bridge Premium Fin' l (D. the 1 12 1 2013) ("I refuse to approve penalties against a defendant who remains defiantly mute against him. binary: he as trial. lI to the A defendant 1 may admit the veracity S of the allegations options in this regard allegation or may go to ) The Court also cannot ignore that this whether he are to administrative approve agency proposed consent enforcement "neither admit nor denyll provisions 32 1 issue l namely judgments actions in containing not only is currently under consideration by the Second Circuit, see Citigroup !!, 673 F. 3d 158, but also has been addressed by several other dist cts across the country, 3987610; Bridge Premium Fin., The Second case must Circuit's have see Circa II, s lip op. at 1. 12 Civ. 2131, ultimate decision treats the Court's weighty concerns Given it. Citigroup the in some bearing in how the Court issue now 2012 WL discussed above and the pending Citigroup II appeal in the Second Circuit, the Court will condition its approval of Consent Judgment and the Relief Defendant the CR Intrins Consent Judgments upon the Second Circuit's ruling in the Citigroup matter. III. 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, Final Judgment as to Relief Defendant CR LLC i the Intrinsic Investments, LLCi the Final Judgment as to Relief Defendant S.A.C. Capital Advisors, LLCi the Final Relief Defendant S.A.C. Capital Associates, Judgment as to Equities, LLCi and Defendant S.A.C. Se disposition of Defendant ReI the the Final Fund, pending Judgment LLC, appeal 33 S.A.C. Judgment LLCi to the Final International as conditioned in as u.s. to Relief upon the Court of Appeals for the Second Circuit in S.B.C. =.. v. :~~~~~-=~~~~~ Global Markets, Inc., 11 Civ. 7387 (S.D.N.Y.). SO ORDERED: Dated: New York, New York 15 April 2013 ~~~ 0 ~ 34 U.S.D.J.

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