Hedge fund SAC fined record $1.8 bn for insider trading

Google – AFP, 4 November 2013

Preet Bharara, United States Attorney for the Southern District of New York speaks

 at a news conference July 25, 2013 about a federal indictment against SAC Capital

(AFP/File, Timothy Clary)

New York City — Giant hedge fund SAC Capital has agreed to plead guilty to criminal charges of insider trading and pay $1.8 billion to settle them, the US Attorney's office announced Monday.

It was the largest-ever insider trading fine, the government said, and will force SAC, once a Wall Street powerhouse run by multi-billionaire Steven A. Cohen, out of the investment advisory business permanently.

US Attorney Preet Bharara characterized the penalties as "steep but fair" and "commensurate with the breadth and duration of the charged criminal conduct," according to a plea agreement filed with the New York federal district court. The settlement must be approved by federal judges.

"Sometimes blameworthy institutions need to be held accountable too," Bharara told a news conference. "No institution should rest easy in the belief that it is too big to jail."

Bharara said the settlement resolves the case against SAC as a company but that the investigation continues into additional individuals involved in the case. The comments imply that Cohen remains potentially at risk of future prosecution.

Six former SAC employees have already pleaded guilty to insider trading in the same investigation, while two others, Michael Steinberg and Mathew Martoma, are fighting charges that they traded stocks for the company based on insider tips they received.

An SAC statement said the firm takes "responsibility for the handful of men who pleaded guilty and whose conduct gave rise to SAC's liability."

"The tiny fraction of wrongdoers does not represent the 3,000 honest men and women who have worked at the firm during the past 21 years," it said.

"SAC has never encouraged, promoted or tolerated insider trading."

The Justice Department's criminal indictment in July alleged SAC ran a broad system of insider trading in which analysts were recruited for their access to company insiders and were encouraged to trade for profit at all costs.

The transactions involved trading stocks of technology, pharmaceutical and other companies based on insider information, netting SAC hundreds of millions of dollars in illegal profits and avoided losses.

In March, SAC agreed to pay $616 million to settle civil insider trading charges. It will get credit for that in Monday's deal, making the net new fine about $1.2 billion.

Cohen grew SAC Capital from a small trading shop into one of the biggest financial players on Wall Street, with $15 billion in assets at its peak.

But since the company's legal troubles erupted, investors have pulled billions in cash out of the company's funds.

Bharara said Monday the fine accounted for 20-25 percent of funds SAC has under management, implying the company still has up to $9 billion under management..

A prominent figure in tony Greenwich, Connecticut where he lives, Cohen is a major investor in art and real estate. He is planning to sell some $80 million in art in upcoming auctions at Sotheby's and Christie's, the New York Times reported.

In the wake of the insider trading crackdown, SAC is expected to attempt to continue to trade Cohen's still-considerable personal funds, permitted under the deal.

Any future trading by SAC defendants will "be required to employ compliance procedures to prevent insider trading" reviewed by a government-overseen independent monitor, Bharara said.

Bharara cited a pending US Securities and Exchange Commission order against Cohen as an additional hurdle in case Cohen seeks to start another hedge fund that would trade investor funds.

The SEC has charged Cohen with failure to supervise Martoma and Steinberg and to prevent them from engaging in insider trading. The agency said possible penalties include a financial fine and a bar from future securities trading.

"The SEC has a pending action against the principal of SAC Capital and that case has not been resolved," Bharara said.

An SEC spokeswoman declined comment.