939 F. Supp. 2d 431
S.D.N.Y.2013Background
- SEC filed action against CR Intrinsic Investors, LLC, Martoma, and Gilman for alleged violations of §10(b), Rule 10b-5, and §17(a).
- Amended Complaint (Mar. 15, 2013) alleged insider trading generating ~$275 million in illicit profits or avoided losses and added unjust enrichment claims against five relief defendants.
- SEC submitted for approval a CR Intrinsic Consent Judgment and corresponding Relief Defendant Consents with “without admitting or denying” language.
- Judgments required disgorgement of $274,972,541 plus $51,802,381.22 pre-judgment interest and CR Intrinsic civil penalty of $274,972,541.
- Court considered whether the settlements, including “neither admit nor deny” provisions, were fair, reasonable, and in the public interest, and whether to withhold final approval pending Citigroup appeal.
- Court conditioned final approval on the Second Circuit’s ruling in Citigroup matter to address the propriety of the agreements.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the provisions stating ‘neither admit nor deny’ are appropriate. | SEC argues deference to agency judgments supports provision. | CR Intrinsic/Relief Defendants urge acceptance to facilitate settlement. | Conditioned approval pending Citigroup ruling; court scrutinizes provisions given public-interest concerns. |
| Whether the monetary relief is fair, adequate, and in the public interest. | SEC asserts $275m illicit profits and corresponding disgorgement/penalty is appropriate. | Defendants contest the adequacy or basis of the calculation. | Monetary relief found fair, substantial, and proportionate to alleged harm. |
| Whether the related criminal proceedings affect judicial scrutiny of the settlements. | Not explicit as to impact but related charges exist. | Settlements should be evaluated independently of criminal cases. | Court notes pendency of criminal case; adopts cautious approach, conditioning approval on Citigroup outcome. |
| Whether to approve the consent judgments now or wait for appellate guidance. | Public interest favored timely resolution. | Judicial scrutiny necessary given extraordinary circumstances. | Approval conditioned on Citigroup decision; not rubber-stamping due to public-interest concerns. |
Key Cases Cited
- Citigroup II, 673 F.3d 158 (2d Cir. 2012) (courts must weigh public interest when reviewing settlements; possible enhanced scrutiny of ‘neither admit nor deny’ provisions)
- Citigroup I, 827 F. Supp. 2d 328 (S.D.N.Y. 2011) (initial approval of settlements containing ‘neither admit nor deny’ provisions; concerns about collateral estoppel and public interest)
- S.E.C. v. Cioffi, 868 F. Supp. 2d 65 (E.D.N.Y. 2012) (court's role is to assess fair/adequate/appropriate settlements within statutory limits)
- Vitesse Semiconductor Corp., 771 F. Supp. 2d 304 (S.D.N.Y. 2011) (discussion of ‘neither admit nor deny’ and related policy considerations)
- Lipsky v. Commonwealth United Corp., 551 F.2d 887 (2d Cir. 1976) (consent judgments and evidentiary value in subsequent litigation)
- United States v. Nederlandsche Combinatie Voor Chemische Industrie, 428 F. Supp. 114 (S.D.N.Y. 1977) (court’s consideration of public interest in settlements)
- In re Cuyahoga Equip. Corp., 980 F.2d 110 (2d Cir. 1992) (appellate deference to agency expertise in settlements)