Pfizer's Bid Rejected by Federal Court

By Jonathan Stempel

NEW YORK (Reuters) – A federal judge on Tuesday rejected Pfizer's bid to recoup about $75.2 million remaining from a U.S. Securities and Exchange Commission insider trading settlement involving billionaire Steven A. Cohen's former hedge fund, SAC Capital Management.

U.S. District Judge Victor Marrero in Manhattan stated that Wyeth, a drugmaker Pfizer acquired in 2009, did not qualify as a victim of the securities violations underlying the SEC case, and was therefore not entitled to the funds.

Marrero directed that the money be paid to the U.S. Treasury, as requested by the SEC.

Pfizer and its legal team did not immediately respond to requests for comment.

The dispute originates from a $602 million civil settlement related to trading in Wyeth and drugmaker Elan by Mathew Martoma, who worked at a unit of SAC and was later convicted based on a neurologist's tips about a 2008 Alzheimer's drug trial.

SAC pleaded guilty to fraud in 2013 and paid $1.8 billion in settlements to the SEC and other authorities.

After compensating Wyeth and Elan investors for their losses, the SEC found $75.2 million remaining. Pfizer claimed it deserved this money, arguing that the neurologist, Sidney Gilman, breached a fiduciary duty to Wyeth where he served as a consultant.

However, the judge concluded that Wyeth's reputational harm from the scandal did not equate to financial harm. "The court certainly agrees that corporations whose secrets are misappropriated for insider trading are generally victims of wrongdoing," he stated. "But Pfizer has failed to allege how the insider trading scheme and Wyeth's reputational harm qualifies as pecuniary harm for the distribution of the disgorged funds."

Marrero also noted that a $7 billion drop in Wyeth's market value following the drug trial was unrelated to the insider trading scheme, which came to light three years later.

Cohen was not criminally charged but accepted a two-year ban on managing outside money to conclude an SEC inquiry into his oversight of Martoma.

He rebranded SAC Capital to Point72 Asset Management in 2014 and ceased trading for that fund in September. According to Forbes magazine, Cohen's net worth is $21.3 billion.

The case is SEC v CR Intrinsic Investors LLC et al, U.S. District Court, Southern District of New York, No. 12-08466.