Giant hedge fund SAC Capital Advisors has agreed to plead guilty to criminal charges of insider trading and pay US$1.8 billion to settle them, the US Attorney’s office announced on 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 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.
The US Department of Justice’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 US$616 million to settle civil insider trading charges. It will get credit for that in Monday’s deal, making the net new fine about US$1.2 billion.
Bharara said on Monday the fine accounted for between 20 and 25 percent of funds SAC has under management, implying the company still has up to US$9 billion under management.
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.