SAC Capital Advisors, the $15 bn hedge fund run by billionaire Steven Cohen, has agreed to plead guilty to insider trading, pay a record insider trading fine of $1.8 bn and close its investment advisory business.
SAC Capital was indicted earlier this year on charges that it made hundreds of millions of dollars illegally between 1999 and 2010 in trading securities of more than 20 companies. Prosecutors say the hedge fund specifically recruited staff with contacts who could help insider trading and create a culture of securities fraud throughout the company.
The hedge fund was sentenced to pay $900 mn in the criminal case and another $900 mn in forfeiture. It was also ordered to shut down operations as an investment adviser and stop accepting third-party investor funds. Although the fund can still operate as a family fund to invest Cohen’s wealth, it faces five years of probation, which includes ongoing surveillance of its compliance measures. SAC has already paid about $600 mn of the fine in an earlier settlement with the SEC.
‘What SAC Capital’s plea demonstrates is that cheating and breaking the law were not only permitted but also allowed to persist,’ says George Venizelos, the FBI assistant director in charge, in a press release. ‘The result is $1.8 bn in fines and forfeiture, the largest penalty in an insider trading case ever, and termination of SAC’s investment advisory business. The problem of insider trading is real. For companies that willfully turn a blind eye, be on notice: how your employees make money is just as important as how much they make.’
Prosecutors say the plea deal does not prevent further criminal action against any former or existing SAC employees. Former SAC Capital fund managers Mathew Martoma and Michael Steinberg both face separate criminal trials, which are scheduled to start during the next three months.
