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 U.S. District Judge Jed Rakoff in Manhattan said the "substantial
additional information" provided by the SEC, "the unique
circumstances of this case, and further guarantees of prompt payment
of the proposed fines" justified approval, according to an order
made public on Wednesday.
Rakoff is a leading critic of SEC settlements that say the
defendants neither admit nor deny wrongdoing. In 2011, he rejected
Citigroup Inc's $285 million fraud settlement with the regulator for
that reason.
In the Heinz case, Michel and Rodrigo Terpins will pay $3 million of
fines and give up $1.81 million of profit related to their purchase
of Heinz stock options one day before Warren Buffett's Berkshire
Hathaway Inc and Brazilian private equity firm 3G Capital agreed to
buy the ketchup maker.
The SEC said Rodrigo Terpins, who was at the time vacationing at
Walt Disney World in Orlando, Florida, bought $90,000 Heinz options
based on an illegal tip from his brother.
It said the options were bought through a family-owned Cayman
Islands entity, Alpine Swift Ltd, and rose 2,000 percent in value in
a single day after the roughly $23.3 billion takeover was announced
in February 2013.
Dwight Bostwick, a lawyer for Michel Terpins, and Steve Kaufman, a
lawyer for Rodrigo Terpins, did not immediately respond to requests
for comment.
SEC spokesman John Nester said: "We're pleased with the decision
approving our settlement."
Responding on January 30 to Rakoff's request for more facts in the
Heinz case, the SEC said it believed the settlements with the
brothers "reflect a fair, adequate and reasonable resolution."
Heinz agreed to the buyout four months before SEC Chair Mary Jo
White modified a decades-old SEC practice of letting defendants
settle without addressing the alleged wrongdoing.
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The SEC now requires admissions in a broader array of cases, and
since June at least seven settlements have included them.
In the Heinz case, settlement papers do not contain the "no-admit,
no-deny" language about which Rakoff expressed concern, but
according to the SEC they include a clause that makes clear that the
removal "should not be construed as an admission."
Rakoff has said judges cannot easily review the fairness of SEC
settlements that do not require admissions of wrongdoing, and that
the practice does not serve the public interest.
In February 2013, the 2nd U.S. Circuit Court of Appeals heard
arguments on whether Rakoff was correct to reject the Citigroup
accord, which concerned securities sold before the financial crisis.
The appeals court has yet to rule.
Rakoff's approach has won support from some other federal judges.
U.S. District Judge Victor Marrero in Manhattan, for example, last
April conditioned approval of a $602 million SEC settlement with
billionaire Steven A. Cohen's SAC Capital Advisors LP on the
Citigroup ruling.
The case is SEC v. Certain Unknown Traders in the Securities of H.J.
Heinz Co, U.S. District Court, Southern District of New York, No.
13-01080.
(Reporting by Jonathan Stempel in New York;
editing by Leslie Adler
and Mohammad Zargham)
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