SAC Capital makes history with largest insider trading penalty. On Monday the massive hedge fund SAC Capital surrendered to federal prosecutors in a $1.8 billion plea deal. The company agreed to plead guilty to every count of an insider-trading indictment issued in July. In addition to the guilty plea SAC Capital is forced to cease outside investments from its investment advisory business and pay $1.8 billion in fines.
The proposed deal, which must first be approved by a judge, was disclosed in a letter to two judges overseeing the case from Preet Bharara, U.S. attorney for the Southern District of New York. The agreement does not indicate how Steven A. Cohen, SAC principal, will continue to manage his personal fortune; nearly $8 billion. The firm, as the agreement now stands, can continue to manage Cohen’s riches.
Prosecutors alleged that SAC leaders created an environment that allowed and encouraged widespread insider trading by its employees. The government stated that SAC leaders purposely overlooked signs that alerted the employees that the trades were based on illegal tips.
The government believes this is the largest financial penalty for insider trading offenses in history. They also support that the proposed global resolution is reasonable and just; and that it promotes respect for the law, deterrence and the interest of justice.
At least eight of the company’s executives of been hit with criminal charges so far and the deal does not mean that further criminal indictments are ruled out.
In March SAC agreed to pay $616 million in order to settle civil insider trading charges filed by the SEC. According to the details within the current settlement those monies will be counted toward the latest deal.
At its climax, SAC Capital managed close to $14 billion in funds. In recent years as the firm has been targeted by numerous insider trading probes several clients have been pulling their money en masse; six have already pleaded guilty in those cases.
The deal which is proposed to be announced on Monday will settle, in addition to criminal charges, the civil charges filed against the firm.
In July prosecutors in New York indicted SAC Capital in a massive criminal complaint, 41 pages, accusing the firm of encouraging its employees to engage in many insider trading schemes to improve profits. According to the criminal complaint, insider trading at SAC was pervasive and substantial; and on a scale without a known or identified pattern.
Cohen still faces civil charges filed by the Securities and Exchange Commission that accuse him of ignoring insider trading that was taking place at his firm. Discussions for a settlement in that case are ongoing.
On Monday the hedge fund powerhouse, SAC Capital, capitulated to federal prosecutors in a $1.8 billion plea deal. The company pled guilty to every count of an insider-trading indictment issued in July. In addition to the guilty plea SAC Capital is forced to cease investments to outsiders from its investment advisory business and pay $1.8 billion in fines.
By: Cherese Jackson (Virginia)