SAC Capital Advisors is the first large Wall Street firm in a very long time to plead guilty to criminal behavior. The insider trading violations come with a $1.2 billion penalty. SAC is owned by billionaire Steve Cohen.
In addition to the fine and guilty plea, federal prosecutors in Manhattan will place the fund on probation for five years and it will no longer be allowed to manage outside investors’ money. Issuing its own statement, SAC said it is taking responsibility for the “handful” of individuals in the firm that pled guilty to insider trading and whose misconduct resulted in the fund’s liability. However, it pointed out, these men made up a “tiny fraction” of the firm and are not reflective of the 3,000 people that have worked there over the last two decades.
Cohen has not been criminally charged. However, the plea agreement is a stain on his reputation and what was once considered a stellar investment track record. The fund has posted average yearly returns of close to 30% since 1992. Now, SAC’s admission that a number of its employees traded stocks because of their access to secret information will always call his success into question.
It was just three months ago that a grand jury indicted SAC for allowing a “systematic” insider trading scam to take place for over a decade—from 1999 through 2010. Eight ex-SAC traders were charged with securities fraud. Six of them pleaded guilty and are cooperating with prosecutors. The other two are about to go on trial.
Earlier this year, SAC agreed to pay federal regulators $616 million in fines over two insider trading cases. The $602 million fine was imposed upon SAC unit Intrinsic Investors because over more than $275 million in profits and losses related to insider information about an Alzheimer’s drug trial. Stocks in pharmaceutical companies Wyeth Pharmaceuticals and Elan Corp. were traded. SAC unit Sigma Capital Management was ordered to pay a $14 million fine for insider trading involving Nvidia Corp. and Dell Inc. stocks. The two portfolio managers involved in these cases allegedly made profits and avoided losing trades in the tens of millions of dollars.
Still yet to be resolved is the civil action filed by the Securities and Exchange Commission against Cohen for this latest insider trading debacle. The regulator is accusing him of ignoring the misconduct that was taking place at SAC. The New York Times says that according to sources the SEC wants to bar Cohen from ever managing money again. (Right now, all of the fund’s investors have taken their money out of SAC—leaving about $9 billion under its management. The money primarily belongs to Cohen and his employees.)
Also, criminal authorities are continuing to investigate the billionaire and other SAC employees, and FBI agents are still looking at the hedge fund’s trading records and seeking more informants. The government has been looking into widescale insider trading allegations within the industry for some time now. Already, there have been over 70 convictions.
SAC Capital Pleads Guilty to Insider Trading, NY Times, March 15, 2013
SAC Hit With Record Insider Penalty, The Wall Street Journal, March 15, 2013
More Blog Posts:
SEC Charges SAC Capital Hedge Fund Adviser Stephen Cohen Faces With Failure to Stop Insider Trading, Institutional Investor Securities Blog, July 20, 2013
New Stream Capital LLC Hedge Fund Executives Face Criminal Securities Fraud Charges, Stockbroker Fraud Blog, February 28, 2013
Hedge Fund Manager Philip Falcone Consents to $18M Securities Fraud Settlement, Institutional Investor Securities Blog, May 16, 2013