SAC Agrees to Plead Guilty in Insider Settlement
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U.S. Says Hedge Fund Will Pay Total $1.8 Billion in Penalties
Updated Nov. 4, 2013 4:00 p.m. ETFederal prosecutors announced Monday what they called a historic settlement of a criminal insider-trading indictment with one of America's most successful hedge funds, SAC Capital Advisors LP.
Under the proposed deal released Monday, SAC, run by star manager Steven A. Cohen, would pay nearly $1.2 billion in criminal penalties tied to federal prosecutors' charges, in addition to $616 million that it paid under an earlier settlement agreement with the Securities and Exchange Commission.
Preet Bharara, United States Attorney for the Southern District of New York speaks at a news conference Nov. 4, 2013, about a federal indictment against SAC Capital. Photo: Getty Images."The aggregate $1.8 billion penalty is—to the Government's knowledge—the largest financial penalty in history for insider trading offenses," Manhattan U.S. Attorney Preet Bharara wrote in a letter dated Monday to the judges overseeing the criminal indictment and a related civil forfeiture case. SAC's lawyers signed the agreement Friday, documents show.SAC and Steven A. Cohen Over the Years
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Who's Who in the SAC Case
The announcement in July of criminal charges against SAC Capital Advisors marked the culmination of a yearslong probe that has produced criminal and civil cases against several individuals.
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SAC's Paper Trail
The government spent years building a case against SAC and its hedge-fund traders. Read the court documents filed by prosecutors and regulators.
SAC also agreed to plead guilty to the charges in an indictment obtained by prosecutors in July, including four counts of securities fraud—one each for four of its units that were charged—and one count of wire fraud. It will also stop managing money from outside investors under the settlement. The judges would have to approve the deal.
"We take responsibility for the handful of men who pleaded guilty and whose conduct gave rise to SAC's liability," SAC said in a statement. "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. SAC has never encouraged, promoted or tolerated insider trading."
Mr. Bharara, announcing the deal, said financial institutions shouldn't rest easy in the belief that they are "too big to jail."
"Law enforcement should not shy away from holding institutions responsible...whether the misbehaving corporation is a hedge fund or a commercial bank or a manufacturer of a popular product," he said.
Mr. Bharara said the "burden" of the proposed financial penalty "will not fall on third-party investors" and that the settlement had no effect on the government's proceedings against individuals who are facing related charges.
In the criminal indictment, prosecutors cited eight SAC traders or analysts—most of whom have left the firm—who have been charged with insider trading.
Prosecutors accused the firm of fostering a culture in which traders and analysts were encouraged to obtain illegal stock tips. Six of the employees have pleaded guilty. Two have pleaded not guilty and are scheduled for trial in the months ahead.
The penalties in the settlement, Mr. Bharara wrote to the judges, "are steep but fair, and are commensurate with the breadth and duration of the charged criminal conduct."
Mr. Cohen himself has been under criminal investigation but not charged. Mr. Bharara said in his letter that the deal "provides no immunity from prosecution for any individual."
Mr. Cohen is still negotiating with the SEC to resolve a separate civil lawsuit regulators filed against him, seeking to ban him from the securities industry for allegedly ignoring signs of insider trading at his firm. The firm has previously said the suit against Mr. Cohen has no merit.
SAC has been one of the most profitable hedge funds on Wall Street, with more than 25% annualized returns over two decades, making Mr. Cohen one of the biggest names in the industry.
Formally, the penalty would be $1.8 billion, according to settlement documents. But prosecutors agreed to deduct the earlier penalty SAC agreed in March to pay to the SEC, resulting in an expected payment for the U.S. attorney's charges of just under $1.2 billion.
The firm didn't admit or deny wrongdoing in the SEC settlement.
In the near future, Mr. Cohen, whose firm managed $15 billion at the beginning of the year, is expected to turn SAC into a so-called family office, managing the $9 billion that belongs to him and employees.
Once the deal is approved, SAC is expected to plead guilty to the indictment—most likely at a later date—on the basis of some or all of the guilty pleas by its former employees.
Companies can generally be held liable for criminal behavior by their employees.
—Jean Eaglesham and Andrew R. Johnson contributed to this article.
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