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SAC record $1.8B insider plea approved; caps 7-year probe

Apr 10, 2014 @ 4:21 pm

sac capital, point72 asset management, insider trading, steven cohen
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Steven A. Cohen (Bloomberg News)

SAC Capital Advisors' landmark $1.8 billion settlement of a U.S. government insider-trading probe stretching back to 2007 was approved by a federal judge, bringing to an end the hedge fund's role as a money manager and capping a decade of insider-trading cases.

SAC Capital, which this week changed its name to Point72 Asset Management, pleaded guilty to reaping hundreds of millions of dollars in illegal profits and fostering a culture of criminality that encouraged brazen insider trading by its employees.

(See also: SAC agrees to plead guilty to end insider trading case.)

Though never able to charge or even sue founder Steven A. Cohen, the government managed to snare eight current or former employees through guilty pleas and trial convictions. Mr. Cohen, 57, who has consistently denied wrongdoing, is the subject of an administrative proceeding by the Securities and Exchange Commission, which claims the billionaire failed to supervise employees to ensure they complied with securities laws.

“Both sides in this case can claim victory,” said Doug Burns, a former federal prosecutor. “Cohen can say 'they didn't have the ability to prosecute me individually because I did nothing wrong.' And the government gets to say this was a place with a horrid culture and, while the evidence didn't enable us to prosecute Steve Cohen, we got a very, very sizable monetary fine out of the culmination of all our efforts.”

CRIMES 'STRIKING'

“The defendants's crimes were striking in their magnitude and striking in their lack of respect for the law,” U.S. District Judge Laura Taylor Swain in Manhattan said Thursday in accepting the plea. Each SAC Capital fund was sentenced to five years' probation and will be under a federal compliance monitor. Mr. Cohen wasn't present for the hearing.

The plea deal ends both the prosecution and money- laundering lawsuit brought by the office of Manhattan U.S. Attorney Preet Bharara. The agreement consists of a $900 million fine to end the criminal case, as well as a separate $900 million judgment the hedge fund agreed to pay to end the suit. Within that judgment is $616 million Mr. Cohen agreed to pay the SEC to settle a separate lawsuit filed last year.

As part of the plea deal, the firm agreed to manage money mainly for Mr. Cohen.

NEW TWIST

SAC Capital's conviction is the apex of a seven-year effort by the Justice Department to root out market cheating not only at hedge funds, but among insiders at publicly traded companies and so-called expert-networking firms.

Those firms, middle-men who put company insiders together with traders to provide industry insight, were the new twist of modern-day market manipulation. The Federal Bureau of Investigation in New York upped the ante as well, leveraging wiretaps and surveillance measures previously reserved for mobsters and drug dealers, to catch Wall Street criminals.

The initiative has netted convictions and guilty pleas of about 80 people charged since August 2009.

U.S. District Court Judge Richard Sullivan, who presided over the money-laundering suit, previously approved that settlement, which included a $284 million payment from SAC Capital, in addition to what Mr. Cohen agreed to pay the SEC.

(Bloomberg News)

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