(The opinions expressed here are those of the author, a

columnist for Reuters.)

By Alison Frankel

May 7 (Reuters) - Pharma company Pfizer ( PFE ) told a New York

federal judge on Monday that it is entitled to recoup about $75

million from the U.S. Securities and Exchange Commission's $600

million settlement with now-shuttered hedge fund SAC Capital

because it was victimized by SAC's insider trading.

The SEC said in March that the $75 million was left over

after the distribution of about $531 million to investors in

pharma companies Wyeth and Elan, which had partnered in the

development of an Alzheimer's drug.

As you surely recall, a consultant for Wyeth and Elan leaked

key clinical data about the drug to an SAC portfolio manager who

used the inside information in 2008 to reap more than $275

million in profits, in what the government has described as the

most lucrative insider trading scheme in U.S. history. (The SAC

trader, Mathew Martoma, was convicted of securities fraud and

conspiracy in 2014.)

About 5,000 Wyeth and Elan investors who allegedly lost

money because of SAC's illicit scheme have been made whole by

disbursements from the so-called fair fund established via the

SEC's settlement with the hedge fund and related defendants, the

agency told U.S. District Judge Victor Marrero in its filing in

March.

The agency urged Marrero to distribute the leftover money to

the U.S. Treasury because all of the documented victims of the

scheme have been repaid in full.

But Pfizer ( PFE ), which acquired Wyeth in 2009, before the insider

scheme was revealed, said on Monday that it and Wyeth were also

victims.

The company's lawyers at Skadden, Arps, Slate, Meagher &

Flom argued that a Wyeth insider betrayed his duty to the

company when he fed secret clinical data to the SAC portfolio

manager. (The insider, a medical consultant, entered a

non-prosecution agreement with the government.)

"The SEC has not argued - nor can it - that the U.S.

Treasury is more of a victim than the company whose fiduciary

misappropriated the results from a crucial clinical trial,"

Pfizer ( PFE ) argued. "Given that this harm stemmed from a breach of

fiduciary duty owed to Wyeth, Wyeth is the 'next best' recipient

of the fair fund."

The SEC declined to comment on Pfizer's ( PFE ) motion. Skadden

referred my query to Pfizer ( PFE ), which sent me an email statement.

"Now that settlement funds appropriately have been distributed

to all eligible shareholders," the company said, "we believe

under governing legal and equitable principles that the

remaining settlement proceeds should be paid to Wyeth, which was

a victim of the conduct at issue."

Pfizer ( PFE ) originally staked a claim to any leftover money from

the SEC's settlement fund back in 2014, not long after SAC

settled with the regulator. But because it wasn't clear at the

time whether any funds would remain after distributions to

eligible investors, Pfizer ( PFE ) and the SEC agreed to wait until the

issue was ripe to litigate the company's demand. (Elan has not

asserted a claim for money from the SEC fund.)

A 2020 U.S. Supreme Court decision, meanwhile, has added a

layer of complexity to the debate over the remains of the SAC

Capital settlement money. In Liu v. U.S. Securities and Exchange

Commission, the justices said, among other things, that money

disgorged by defendants in SEC cases should generally be

disbursed to victims instead of going to the U.S. government.

The SEC acknowledged that Supreme Court ruling in its motion

asking Marrero to transfer the leftover SAC money to U.S.

Treasury coffers. But the agency argued that the leftover $75

million was actually part of the civil penalty paid by SAC - not

part of the profits disgorged by the hedge fund and related

defendants.

Distributions from SEC fair funds, the commission told the

New York judge, are first paid out with disgorged profits. SAC

and the other defendants disgorged $327 million, including

interest, which was all disbursed to Wyeth and Elan investors,

the SEC said. The rest of the money in the settlement fund was a

civil penalty, the SEC argued - and, as a matter of statute, the

U.S. government is entitled to civil penalties collected by the

SEC.

Pfizer's ( PFE ) brief on Monday countered that the SEC has never

previously distinguished between disgorged profits and civil

penalties in its account of payouts from the SAC fair fund.

Pfizer ( PFE ) said the agency's 11th-hour assertion that it first pays

investors out of disgorged funds, "with no citation or

explanation," appears to be an attempt to evade the Supreme

Court's warning in Liu that victims are the preferred

beneficiaries of settlement money collected by the SEC.

If there were any ambiguity about that holding, Pfizer ( PFE ) said,

it was dispelled by the 2nd U.S. Court of Appeals' decision in

2023's SEC v. Govil, in which the appeals court said

disgorgement "must be 'awarded for victims.'"

The government itself has characterized Wyeth as a victim,

Pfizer ( PFE ) said, pointing to arguments by federal prosecutors in

criminal proceedings stemming from the SAC insider trading

scheme. The SEC's protestation that Wyeth and Pfizer ( PFE ) cannot

quantify their economic losses, Pfizer ( PFE ) said, rings hollow.

The bottom line, according to Pfizer ( PFE ), is that it's simply

more equitable to repay a company that was undoubtedly harmed by

the insider trading scheme than to hand over the money to the

U.S. Treasury.

The SEC has 60 days to respond.

Read more:

Cohen's SAC Capital in $135 million settlement with Elan

investors

SAC Capital's Martoma found guilty of insider trading