Monday, December 07, 2015

Class Certified in Insider Trading Case Against S.A.C. Capital

By Rodney F. Tonkovic, J.D.

A class has been certified in the securities fraud action brought against S.A.C. Capital Advisors, L.P. The action arose out of alleged inside trading by SAC and several affiliated persons in the securities of Elan Corporation and Wyeth LLC. The court found that the class, which consisted of purchasers and sellers of Elan Corporation American Depositary Receipts, satisfied the requirements of Rule 23 (a) and (b) (Kaplan v. S.A.C. Capital Advisors, L.P., December 2, 2015, Marrero, V.).

Background. The action against SAC arose from a massive insider trading scheme involving trading ahead of a negative public announcement regarding clinical trial results for an Alzheimer’s drug. Elan, an Irish biotech company, was developing the drug, bapineuzumab, along with Wyeth LLC.

As part of the scheme, SAC portfolio manager Mathew Martoma allegedly obtained inside information from one of the doctors supervising the clinical trials of bapineuzumab and gave these reports to SAC founder Steven Cohen. SAC then used this information to trade ahead of a negative public announcement regarding the clinical trial’s results.

Lead plaintiffs were designated in April 2013. In August 2014, the court ruled that SAC’s disgorgement of $275 million in ill-gotten profits in a related settlement with the SEC did not serve to extinguish the plaintiffs’ claims against SAC, Cohen, and Martoma. In that case, among other conclusions, the court ruled that the plaintiffs could attempt to prove the insufficiency of the SEC settlement and recover any difference between actual profits and the amount disgorged to the SEC.

Class certification. The proposed class consisted of buyers of Elan's ADRs between July 21 and 29, 2008 and sellers between August 23, 2006 and July 18, 2008. The court certified the class, finding that it met the requirements of Rule 23(a) and (b). Regarding Rule 23(a), there was no dispute as to the numerosity, commonality, and typicality requirements. While SAC argued that the plaintiffs' proposed class counsel were inadequate due to a failure to provide discovery, the court noted that it earlier disposed of this objection, and, moreover, that it was persuaded that the appointment of the proposed counsel was appropriate.

Finally, turning to Rule 23(b), the court concluded that the class met the predominance requirement (there was no dispute as to superiority). According to the court, the plaintiffs sufficiently alleged the materiality of the alleged omissions, since SAC had a duty to disclose arising from the doctor's breach of his fiduciary duty, which entitled them to the Affiliated Ute presumption of reliance. The court then found that while individualized inquiries would be required, there was a class-wide methodology for determining damages, so individual damage calculations would not overwhelm issues common to the class.

The case is No. 12-cv-9350.