Billionaire Steven Cohen's SAC Capital Advisors, the hedge fund firm accused of fostering a culture of rampant insider trading, has agreed to plead guilty to a federal indictment and pay $1.8 billion, the U.S. said.
The company, charged earlier this year, was accused of operating a conspiracy stretching back to 1999, reaping hundreds of millions of dollars in illicit profit. Mr. Cohen, 57, wasn't charged in the indictment of the firm but still faces an administrative action filed by the Securities and Exchange Commission for his alleged failure to supervise the hedge fund's activities.
“What SAC Capital's plea demonstrates is that cheating and breaking the law were not only permitted but allowed to persist,” George Venizelos, head of the FBI's New York office, said in a statement. “The result is $1.8 billion in fines and forfeiture, the largest penalty in an insider trading case ever, and termination of their investment advisory business.”
The fund's penalty includes $616 million that Mr. Cohen, SAC's founder and owner, agreed to pay the SEC to settle a related lawsuit in March. SAC also has agreed to close the affiliate SAC capital hedge funds to outside investors, the U.S. said.
Jonathan Gasthalter, a spokesman for SAC at Sard Verbinnen & Co., didn't immediately respond to requests seeking comment on the agreement.
The plea deal isn't the end of the investigation of SAC or Mr. Cohen, who has been the target of a multiyear probe. Two insider trading trials in the next three months of managers at his hedge fund may shed more light on its internal workings, and prosecutors continue to investigate trading by SAC employees in Gymboree Corp., a children's-apparel maker, a person familiar with the matter said.
The SAC agreement provides “no immunity from prosecution for any individual and does not restrict the government from charging any individual for any criminal offense,” the government wrote in the court filing.
“It's far easier for SAC Capital as a corporate entity to plead guilty and settle with the government because it doesn't have to worry about being incarcerated,” said Anthony Sabino, a professor of law at St. John's University. “The government has amassed tons of evidence against the fund, which can't be helpful to the others. The pressure's on for one of them to plead guilty.”
SAC portfolio manager Michael Steinberg is scheduled to go on trial Nov. 18 for allegedly engaging in insider trading in Dell Inc. and Nvidia Corp., based on illicit tips provided by Jon Horvath, his analyst. Mr. Horvath, who has pleaded guilty and is cooperating with the government, is scheduled to be a witness against Mr. Steinberg, who is the longest-serving SAC employee of those the U.S. has charged in its insider trading probe.
Mathew Martoma, a former fund manager for a unit of SAC, has a January trial date. He's accused of using inside information from two doctors who were involved in the clinical trial of an Alzheimer's drug to trade shares of Elan Corp. and Wyeth. The government has called it the biggest criminal insider trading case against an individual in history.
As part of the agreement, SAC will name an independent compliance consultant who will be approved by the government, according to prosecutors. SAC Capital and its funds named in the indictment are pleading guilty to all five counts, including securities fraud and wire fraud. Each of the SAC entities will be under a term of five years' probation, the U.S. said.
Clients have pulled their money out of SAC as the government investigation progressed. Executives at the hedge fund, which oversaw about $15 billion in assets at the start of 2013, expect to begin 2014 with about $9 billion.
The agreement is contingent upon the approval of U.S. District Judge Laura Taylor Swain, who is presiding over the criminal case, and U.S. District Judge Richard Sullivan, who is overseeing the civil money-laundering case. The agreement was signed Nov. 1 by the U.S. and SAC, who was represented by Peter Nussbaum, the hedge fund's general counsel.