NEW YORK, N.Y. – A federal prosecutor says the federal government has effectively shut down a hedge fund giant with a deal requiring it to plead guilty to criminal fraud charges and pay a record $1.8 billion, proving that no financial institution is “too big to jail.”
U.S. Attorney Preet Bharara announced the deal with SAC Capital Advisors and related companies on Monday, saying it must be approved by federal judges in Manhattan before “the largest fine in history for insider trading offences” takes effect. A plea hearing in the case was set for Friday.
Bharara also emphasized that the agreement does not resolve current or potential cases that might be brought against any individuals, including SAC Capital Advisors billionaire founder Steven A. Cohen.
“There is no immunity from criminal prosecution for any person,” he said, though he added that individual guilt is not the government’s only mission.
“Sometimes, blameworthy institutions need to be held accountable too. No institution should rest easy in the belief that it is too big to jail,” Bharara said.
He said an independent expert will be assigned to the SAC companies during five years of probation to ensure no insider trading occurs as the companies wind down their businesses.
The company will pay a $900 million fine and forfeit another $900 million to the federal government, though it can exclude $616 million that SAC companies have already agreed to pay to settle parallel actions by the U.S. Securities and Exchange Commission.
The government in a letter to federal judges called the penalties “steep but fair” and “commensurate with the breadth and duration of the charged criminal conduct.”
Early Monday afternoon, SAC Capital said in a statement: “We take responsibility for the handful of men who pleaded guilty and whose conduct gave rise to SAC’s liability. The tiny fraction of wrongdoers does not represent the 3,000 honest men and women who have worked at the firm during the past 21 years. SAC has never encouraged, promoted or tolerated insider trading.”
Later, the company softened its statement, subtracting “tiny fraction” and replacing the last sentence with a more remorseful tone: “Even one person crossing the line into illegal behaviour is too many and we greatly regret this conduct occurred.”
In a statement, FBI Assistant Director George Venizelos said SAC Capital’s plea demonstrates “that cheating and breaking the law were not only permitted but allowed to persist.”
Bharara said the criminal investigation continues.
The SEC brought civil charges against Cohen in July. He was accused of failing to prevent insider trading at the company, which he founded in 1992 and which bears his initials. The SEC sought to fine Cohen and effectively shut him down by barring him from managing investor funds. Cohen has disputed the SEC’s allegations.
Over two decades, Cohen built SAC Capital into one of the biggest and most envied hedge funds. With its hothouse competitive environment for portfolio managers — and outsized bonuses for trading success and swift punishment for losses — the company achieved stellar success.
Cohen rose to become one of the highest-profile figures in U.S. finance and the 40th-richest American, with a net worth of $8.8 billion, according to Forbes. He is among an elite group of hedge fund managers who have personally earned at least $1 billion a year.
Criminal charges were filed in July against Stamford, Conn.-based SAC Capital. As part of the plea, SAC Capital LP, SAC Capital Advisors LLC, CR Intrinsic Investors LLC and Sigma Capital Management LLC, will plead guilty to a single count of wire fraud and four counts of securities fraud, the government said.
A prosecutor said in July that evidence against the company was “voluminous” and included electronic messages, instant messages, court-ordered wiretaps and consensual recordings. Prosecutors said a work culture at SAC permitted, if not encouraged, insider trading.
Authorities alleged that SAC Capital earned hundreds of millions of dollars illegally from 1999 to 2010 as its portfolio managers and analysts traded on inside information from at least 20 public companies.
At least eight former SAC employees have previously been criminally charged with insider trading and most have pleaded guilty. One is a former portfolio manager at an SAC affiliate who was accused of using illegal tips about an experimental Alzheimer’s drug to net more than $276 million for his fund and others.
Of the roughly $15 billion in assets that SAC managed as of earlier this year, about half belonged to Cohen and his employees. The rest was client money.
Cohen wasn’t named as a defendant in the case. He was repeatedly referenced in court papers as the “SAC owner” who “enabled and promoted” insider trading practices.
Gordon reported from Washington. Associated Press Writer Tom Hays in New York contributed to this report.