SAC Capital Advisors LP, the hedge fund run by billionaire Steven Cohen, is to pay a record US$616 million to settle US regulatory claims that two of its units engaged in insider trading.
Settlement of the civil allegations against the units does not preclude the US Securities and Exchange Commission (SEC) from pursuing Cohen himself in the future, SEC acting enforcement director George Canellos said on a conference call with reporters on Friday.
The investigation by the SEC continues, as does the criminal case against former SAC portfolio manager Mathew Martoma.
“There is no way of predicting what they intend to do,” said Jacob Frenkel, a former SEC enforcement lawyer who is now a partner at Shulman Rogers Gandal Pordy & Ecker PA in Potomac, Maryland. “When the agency is so obviously pursuing someone, and when we do not know what cooperators are saying, there are just too many unknowns.”
Cohen was linked in November last year to alleged illegal trades carried out by Martoma in a case that US prosecutors described as the most lucrative insider trading scheme they have ever uncovered, with profits and averted losses of US$276 million.
SAC manages US$15 billion out of Stamford, Connecticut, 60 percent of which is Cohen’s and his employees’ money. Cohen has not been sued personally by the SEC or charged with a crime.
“Steve Cohen has not been charged with any wrongdoing and has done nothing,” company spokesperson Jonathan Gasthalter said.
SAC is paying almost four times the US$156 million Galleon Group LLC founder Raj Rajaratnam, who is serving 11 years in prison for insider trading, paid in civil and criminal fines in 2011.
Stock-market arbitrager Ivan Boesky, who pleaded guilty to conspiracy in 1987, paid US$100 million and was sentenced to three years in prison.
Michael Milken, the former junk-bond financier who pleaded guilty to securities fraud, paid more than US$1.1 billion in criminal and civil fines as part of his March 1991 settlement with the US Department of Justice and the SEC.
In 1990, Milken was sentenced to 10 years in prison. His sentence was later reduced to two years.
SAC and its affiliates settled the SEC’s claims without admitting or denying wrongdoing.
SAC unit CR Intrinsic Investors LLC agreed to pay about US$602 million and Sigma Capital will forfeit about US$14 million, the SEC said.
They settled for a penalty about equal to the disgorgement amount.
“The historic monetary sanctions against CR Intrinsic and its affiliates are sharp warning that the SEC will hold hedge fund advisory firms and their funds accountable when employees break the law to benefit the firm,” Canellos said in a statement.
“This settlement is a substantial step toward resolving all outstanding regulatory matters and allows the firm to move forward with confidence,” SAC spokesman Gasthalter said.
“We are committed to continuing to maintain a first-rate compliance effort woven into the fabric of the firm,” he added.
The SEC’s allegations against CR Intrinsic relate to a November lawsuit against Martoma, who allegedly placed trades ahead of an announcement involving a clinical trial of an Alzheimer’s drug being jointly developed by two pharmaceutical companies. Martoma has pleaded not guilty.