U.S. District Judge Laura Taylor Swain has approved the criminal settlement reached between the US Department of Justice and SAC Capital Advisors LP. The hedge fund, which was founded by Steven A. Cohen, consented to pay a $1.8 billion penalty and plead guilty to insider trading charges that resulted in hundreds of millions of dollars in illegal profits.
According to an indictment issued last year, for over a decade, insider trading involving stock of over 20 publicly-traded companies occurred at SAC Capital. The hedge fund is pleading guilty to numerous counts of securities fraud and a single count of wire fraud.
Eight of its employees have either been convicted or pleaded guilty over their involvement, including former SAC Capital portfolio managers Mathew Martoma and Michael Steinberg, who were convicted in their trials but will likely appeal. Cohen, however, has not been criminally charged—although the Securities and Exchange Commission did file a civil case against him. The regulator also put forth an administrative action to get Cohen barred from the securities industry because he failed to properly supervise Steinberg and Martoma or prevent the insider trading from happening.
Of the $1.8 billion, $900 million is a civil forfeiture (lowered to $284 million because of money already paid by SEC to SAC) and $900 is a criminal penalty. Included in the securities settlement is $616 million that will go to the regulator as settlement. Also, as part of the agreement, SAC can no longer manage the funds of outside investors and it will have to undergo a 5-year probation and compliance monitoring period.
SAC is now called Point 72 Asset Management and it can only invest the wealth of Cohen, members of his family, and his employees. The firm oversees around $9 – $10 billion, much lower than the over $16 billion it managed prior to the financial crisis.
The DOJ has been trying to uncover market cheating at hedge funds, publicly traded companies, and expert-networking firms for several years now, and so has the Federal Bureau of Investigation. In nearly five years, about 80 people have entered guilty pleas or been convicted as a result.
U.S. judge accepts SAC guilty plea, OK’s $1.2 billion deal, Reuters, April 10, 2014
As Judge OKs SAC Plea, Pursuit of Cohen Appears to Cool, The Wall Street Journal, April 10, 2014
More Blog Posts:
SAC Capital Advisors to Pay $1.2B Penalty, Pleads Guilty to Insider Trading Violations, Stockbroker Fraud Blog, November 4, 2014
SEC Charges SAC Capital Hedge Fund Adviser Stephen Cohen Faces With Failure to Stop Insider Trading, Institutional Investor Securities Blog, July 20, 2013
US Hedge Fund Industry is Worried About Tax Implications Under EU Directive, Institutional Investor Securities Blog, November 27, 2013