SAC to shut down following $1.2B settlement with U.S. government

Settlement caps probe of one of Wall Street’s top-performing hedge funds

A decade in the making, SAC Capital Advisors LP will be forced to close its doors following a $1.2 billion insider-trading settlement with the U.S. government. The agreement follows the hedge fund giant’s earlier, $616 million civil pact with the Securities and Exchange Commission (SEC). The $1.8 billion penalty, a record for an insider-trading case, will go to the U.S. Treasury.

Under the agreement, which is subject to court approval, the SAC companies will plead guilty to each count for which they are charged in an indictment unsealed in July 2013, charging the SAC companies with securities fraud and wire fraud in connection with a large-scale insider trading scheme.

The agreement imposes a $1.8 billion financial penalty on the SAC companies — the largest insider trading penalty in history — split between a $900 million fine in the criminal case and a $900 million forfeiture judgment in a civil money laundering and forfeiture action filed by the government simultaneously with the criminal charges, according to a Nov. 4 statement released by the Federal Bureau of Investigation (FBI). It also provides that the SAC companies and their affiliates will no longer accept outside investor funds and will shut down operations as an investment adviser.

After years of denying any wrongdoing, the hedge fund founded by billionaire Steven A. Cohen agreed to plead guilty to criminal insider-trading charges, to give up managing outside investors’ money, to submit to a five-year probationary period, and to monitoring by a compliance consultant.

“We take responsibility for the handful of men who pleaded guilty,” SAC said in a statement, The Wall Street Journal reported. “These wrongdoers do not represent the 3,000 honest men and women who have worked at the firm during the past 21 years. Even one person crossing the line into illegal behavior is too many and we greatly regret this conduct occurred.”

According to the indictment, from 1999 through at least 2010, numerous employees of the SAC companies allegedly obtained and traded on material, non-public information that they were not permitted to have, or recommended trades based on such information to SAC portfolio managers or the SAC owner.

Under the terms of the settlement, the government is not prevented from charging any individual with insider trading offenses and seeking the maximum prison term for such offenses. However, Cohen is not expected to be charged personally with any crime, the Journal reported. Wall Street traders have said that the settlement gives Cohen a chance to manage his own multibillion-dollar fortune, or possibly return to managing money for outside investors through a new company.

 

For more details on the SAC case, check out InsideCounsel’s coverage below:

SAC Capital Advisors and its founder hope to settle with SEC

SAC trader's lawyers seek access to witnesses

U.S. indicts SAC Capital on fraud charges

 

Contributing Author

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Erin E. Harrison

Erin E. Harrison is the Editor in Chief of InsideCounsel magazine. Harrison’s diverse professional background includes extensive expertise in both print and online media, highlighted...

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