The Wall Street Journal
Updated Nov. 5, 2013 11:39 p.m. ET
Preet Bharara, U.S. Attorney for the Southern District of New York, announced on Monday that SAC Capital Advisors and related companies had agreed to pay record penalties and to plead guilty to criminal insider-trading charges. SAC has also agreed to shut down its business of managing other people's money.
But in this settlement, assuming it is approved by a judge, no individuals will plead guilty to anything. SAC will pay $1.8 billion, including more than $600 million it agreed to pay in a related settlement earlier this year with the Securities and Exchange Commission. Few people expect criminal charges to be filed against SAC founder and CEO Stephen A. Cohen.
Therefore, after a multiyear investigation, the legal conclusion seems to be that Mr. Cohen is a noncriminal running a criminal enterprise. In a Monday statement, Mr. Bharara claimed that "individual guilt is not the whole of our mission. Sometimes, blameworthy institutions need to be held accountable too. No institution should rest easy in the belief that it is too big to jail."
U.S. Attorney for the Southern District of New York, Preet Bharara Getty Images
But institutions don't rest, don't believe and certainly don't go to jail. People do. And if—without much in the way of cooperating witnesses or wiretaps—Mr. Bharara has decided he can't make a case against Mr. Cohen, will he now slap the cuffs and an orange jumpsuit on SAC's Stamford, Connecticut headquarters?
On Monday George Venizelos, Assistant Director-in-Charge of the FBI's New York field office, employed the passive voice to describe this phenomenon of crimes without criminals: "What SAC Capital's plea demonstrates is that cheating and breaking the law were not only permitted but allowed to persist." But who allowed them to persist?
It's true that six former SAC employees have pleaded guilty to insider trading and two more criminal trials of individuals are on the horizon. But as far as who allowed crimes to occur in a firm of roughly 1,000 employees, that question will apparently remain unresolved.
The SEC has a pending civil case against Mr. Cohen for a failure to supervise. No trial date has been set, and if one ever occurs, it might shed some light on how he managed the firm. But the SEC would only have to prove negligence, not intent, so even a finding of liability wouldn't answer the question of whether this outlaw organization was actually run by an outlaw.
Whether there are any victims to SAC's crimes may be an even harder question to answer. Mr. Bharara couldn't name any at his Monday press conference, because they are theoretical. The prosecutor spoke of people who believe the markets are fair and that investors all play by the same rules. Others would argue that investors view as most fair a market in which prices reflect all available information and are therefore more accurate, or perhaps one in which investors, not regulators, decide what kind of disclosure they require.
Perhaps hazier still is the public understanding of what exactly insider trading is. After his recent win in a civil insider-trading case against the SEC, billionaire Mark Cuban noted that there are "no bright-line rules" and added of the SEC, "They regulate through litigation."
Illegal insider trading is generally understood to be trading securities on material nonpublic information by a fiduciary or someone in a position of trust, but it's never been precisely defined. The Securities and Exchange Commission notes that "Insider trading violations may also include 'tipping' such information, securities trading by the person 'tipped,' and securities trading by those who misappropriate such information."
The SAC case centered on this gray area of tips, and of course Monday's settlement involved the Department of Justice and criminal charges, where the government must clear a much higher bar than in the SEC's civil cases. At trial Mr. Bharara would have had to prove guilt beyond a reasonable doubt, rather than simply having to demonstrate a preponderance of the evidence as the SEC does. Had the Justice case gone to trial, however, there's no guarantee that SAC could have capped its payouts at even $1.8 billion.
So we have the unsatisfying result of Mr. Cohen, who remains a multibillionaire, going on his way after agreeing to a hefty fee. And we have $1.8 billion flowing from the private economy to Washington, though prosecutors haven't proven that the government deserves a single dollar.
Updated Nov. 5, 2013 11:39 p.m. ET
Preet Bharara, U.S. Attorney for the Southern District of New York, announced on Monday that SAC Capital Advisors and related companies had agreed to pay record penalties and to plead guilty to criminal insider-trading charges. SAC has also agreed to shut down its business of managing other people's money.
But in this settlement, assuming it is approved by a judge, no individuals will plead guilty to anything. SAC will pay $1.8 billion, including more than $600 million it agreed to pay in a related settlement earlier this year with the Securities and Exchange Commission. Few people expect criminal charges to be filed against SAC founder and CEO Stephen A. Cohen.
Therefore, after a multiyear investigation, the legal conclusion seems to be that Mr. Cohen is a noncriminal running a criminal enterprise. In a Monday statement, Mr. Bharara claimed that "individual guilt is not the whole of our mission. Sometimes, blameworthy institutions need to be held accountable too. No institution should rest easy in the belief that it is too big to jail."
U.S. Attorney for the Southern District of New York, Preet Bharara Getty Images
But institutions don't rest, don't believe and certainly don't go to jail. People do. And if—without much in the way of cooperating witnesses or wiretaps—Mr. Bharara has decided he can't make a case against Mr. Cohen, will he now slap the cuffs and an orange jumpsuit on SAC's Stamford, Connecticut headquarters?
On Monday George Venizelos, Assistant Director-in-Charge of the FBI's New York field office, employed the passive voice to describe this phenomenon of crimes without criminals: "What SAC Capital's plea demonstrates is that cheating and breaking the law were not only permitted but allowed to persist." But who allowed them to persist?
It's true that six former SAC employees have pleaded guilty to insider trading and two more criminal trials of individuals are on the horizon. But as far as who allowed crimes to occur in a firm of roughly 1,000 employees, that question will apparently remain unresolved.
The SEC has a pending civil case against Mr. Cohen for a failure to supervise. No trial date has been set, and if one ever occurs, it might shed some light on how he managed the firm. But the SEC would only have to prove negligence, not intent, so even a finding of liability wouldn't answer the question of whether this outlaw organization was actually run by an outlaw.
Whether there are any victims to SAC's crimes may be an even harder question to answer. Mr. Bharara couldn't name any at his Monday press conference, because they are theoretical. The prosecutor spoke of people who believe the markets are fair and that investors all play by the same rules. Others would argue that investors view as most fair a market in which prices reflect all available information and are therefore more accurate, or perhaps one in which investors, not regulators, decide what kind of disclosure they require.
Perhaps hazier still is the public understanding of what exactly insider trading is. After his recent win in a civil insider-trading case against the SEC, billionaire Mark Cuban noted that there are "no bright-line rules" and added of the SEC, "They regulate through litigation."
Illegal insider trading is generally understood to be trading securities on material nonpublic information by a fiduciary or someone in a position of trust, but it's never been precisely defined. The Securities and Exchange Commission notes that "Insider trading violations may also include 'tipping' such information, securities trading by the person 'tipped,' and securities trading by those who misappropriate such information."
The SAC case centered on this gray area of tips, and of course Monday's settlement involved the Department of Justice and criminal charges, where the government must clear a much higher bar than in the SEC's civil cases. At trial Mr. Bharara would have had to prove guilt beyond a reasonable doubt, rather than simply having to demonstrate a preponderance of the evidence as the SEC does. Had the Justice case gone to trial, however, there's no guarantee that SAC could have capped its payouts at even $1.8 billion.
So we have the unsatisfying result of Mr. Cohen, who remains a multibillionaire, going on his way after agreeing to a hefty fee. And we have $1.8 billion flowing from the private economy to Washington, though prosecutors haven't proven that the government deserves a single dollar.
Johnson & Johnson to Pay $2.2 Billion to Settle U.S. Probes
Deal with Justice Department Regards Drug Maker's Selling of Antipsychotic Risperdal
By JONATHAN D. ROCKOFF
Updated Nov. 4, 2013 8:27 p.m. ET
The deal resolves probes that prosecutors had pursued for nearly a decade into allegations that J&J had promoted drugs in the late 1990s and early 2000s for unapproved and sometimes harmful uses. The settlement ends years of often-difficult negotiations that at one point even pitted prosecutors in Washington, D.C., against federal prosecutors in Philadelphia.
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J&J 'displayed a reckless indifference to the safety of the American people,' Attorney General Eric Holder said at a news conference on Monday. Associated Press
Prosecutors accused J&J of encouraging Risperdal's use in elderly nursing-home patients suffering from dementia, even though such a use wasn't approved by health regulators and could prove life-threatening. The company was also accused of marketing Risperdal to certain boys, despite a risk it could stimulate development of breasts.
J&J "displayed a reckless indifference to the safety of the American people," U.S. Attorney General Eric Holder said at a news conference on Monday announcing the settlement. "And it constitutes a clear abuse of the public trust, showing a blatant disregard for systems and laws designed to protect public health."
J&J, of New Brunswick, N.J., said it had already set aside funds to cover the full cost of the settlement, and it had already paid out $200 million of the $2.2 billion as part of agreements reached in previous years. The company disputed many of the government's claims and said its settlement of civil allegations wasn't an admission of wrongdoing or liability.
"We do not agree with all of the government's allegations and strongly believe some of them are not supported by the facts," J&J general counsel Michael Ullmann wrote to employees. The company settled, he said, "because it resolves complex and lengthy legal matters, allowing us to continue focusing our full attention on delivering innovative health-care solutions for patients and their families."
Under the terms of the settlement announced Monday, J&J's payment included a criminal fine of $334 million and forfeiture of $66 million. The company pleaded guilty to introducing a misbranded drug into interstate commerce, a plea that preserves J&J's ability to sell its products to Medicare and other government health programs.
The settlement would also resolve investigations into the promotion of Invega, another schizophrenia agent like Risperdal, and the heart-failure drug Natrecor.
The company also agreed to upgrade its compliance practices and submit to five years of monitoring by the Department of Health and Human Services' Office of Inspector General.
The J&J deal is among the biggest reached between the Justice Department and a pharmaceutical company accused of promoting medicines in ways that lead to unnecessary spending by government health programs. Federal and state prosecutors have been pursuing the cases for several years, aided by company whistleblowers.
Last year, GlaxoSmithKline PLC agreed to pay $3 billion and plead guilty to criminal charges involving the antidepressants Paxil and Wellbutrin and the diabetes drug Avandia. In 2009, Pfizer Inc. agreed to pay $2.3 billion to resolve a drug-promotion criminal investigation.
Under federal law, drug makers can market medicines only for uses approved by the U.S. Food and Drug Administration, though doctors can prescribe drugs for unapproved, or off-label, uses.
Risperdal is a pill treating the symptoms of mental illnesses such as schizophrenia, bipolar mania and irritability in autistic patients. The medicine had been J&J's top-selling drug with $2.2 billion in sales in 2007, the year before it lost U.S. patent protection.
Prosecutors alleged that J&J's Janssen Pharmaceuticals unit promoted Risperdal to elderly patients suffering from dementia, despite no approval for that use. Prosecutors also alleged that J&J's "ElderCare" sales force pushed Risperdal for use in these elderly patients, and sales representatives' bonus awards failed to distinguish prescriptions for schizophrenia or the unapproved dementia use.
In 2005, the FDA required the label warn that elderly patients suffering from dementia-related psychosis were at a higher risk of death.
Prosecutors also alleged that J&J promoted Risperdal for use by boys suffering from mental disabilities despite knowing that use could raise levels of a hormone stimulating breast development.
J&J faces more than 160 personal-injury lawsuits in state courts in Philadelphia filed by users of Risperdal alleging it caused their breasts to grow, according to Stephen Sheller, one of the lead lawyers in the Risperdal whistleblower and breast litigation.
The company is fighting most of the lawsuits but has settled some others.
Executives at J&J recognize that the federal settlement "represents solid ammunition for all the litigants in the civil cases out there,'' one person familiar with the situation said Monday.
J&J had been negotiating for years to resolve the government investigations. At one point, J&J and prosecutors in Philadelphia had tentatively agreed to a $1 billion settlement of the Risperdal claims, but prosecutors in Washington, D.C., scuttled the proposal as too small, The Wall Street Journal has reported. The rejection prompted the sides to fold in other probes into the deal.
—Devlin Barrett and Joann S. Lublin contributed to this article.
Write to Jonathan D. Rockoff at jonathan.rockoff@wsj.com
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