The Securities and Exchange Commission is meeting behind closed doors Thursday to decide whether to establish an investor fund from the booty it collected from disgraced hedge fund SAC Capital.
SAC, run by hedge-fund kingpin Steve Cohen, pled guilty to civil and criminal charges of insider trading in 2012 and paid the SEC $602 million as part of the settlement.
The SEC's decision over what to do with the money is part of a larger internal debate at the agency over who is harmed by insider trading, according to sources familiar with the matter.
In March of 2013, the SEC originally suggested the penalty money go to the Treasury Department. But investors suing SAC Capital objected, and the SEC said it would put the money into an interest-bearing escrow account pending a final decision on setting up a Fair Fund.
Shareholders are suing SAC Capital in a class action for losses they incurred investing in Elan and Wyeth, the two companies whose stock SAC sold, then shorted, after receiving an illegal tip that trials for the Alzheimer's drug they were developing were not going well.
SAC's $275 million in gains and averted losses in those stocks was the biggest insider-trading profits ever prosecuted and also led to the insider-trading conviction of SAC employee Mathew Martoma.
Since Fair Funds were established by the Sarbanes Oxley Act of 2002, they have been commonly set up to pay out investors in securities-fraud cases.
Unless ordered otherwise, the SEC is required to set up the fund within 60 days of the receiving the money — a deadline that just passed. SAC was required to pay its fine by Aug. 4.
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