NEW YORK – SAC Capital Advisors will plead guilty to criminal fraud charges, stop investing money for others and pay $1.8 billion — the largest financial penalty in history for insider trading — to resolve criminal and civil claims against the hedge fund giant, the government announced Monday.
The government said in a letter to judges presiding over Manhattan cases that the “proposed global resolution” of the criminal and civil cases against SAC Capital Advisors and related companies also includes an agreement that SAC will cease operating as an investment adviser and will not accept any additional funds from third-party investors.
The company will pay a $900 million fine and forfeit another $900 million to the federal government, though $616 million that SAC companies have already agreed to pay to settle parallel actions by the Securities and Exchange Commission will be deducted from the $1.8 billion.
The government called the penalties “steep but fair” and “commensurate with the breadth and duration of the charged criminal conduct.”
In a statement issued Monday afternoon, SAC Capital said: “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 revised and softened its statement, subtracting “tiny fraction” and replacing the last sentence with a more remorseful tone: “Even one person crossing the line into illegal behavior is (one) too many and we greatly regret this conduct occurred.”
U.S. Attorney Preet Bharara told a news conference the settlement should send the message that “no institution should rest easy in the belief that it is too big to jail.” He said it is up to the courts to decide whether to accept the plea deal. No date for a plea was immediately set.
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.”
“The result is $1.8 billion in fines and forfeiture, the largest penalty in an insider trading case ever, and termination of their investment advisory business,” he added.
The deal does not resolve a civil case the SEC brought in July against SAC Capital’s billionaire founder, Steven A. Cohen. 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 outsize 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 the Stamford, Connecticut-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 between 1999 and 2010 as its portfolio managers and analysts traded on inside information from at least 20 public companies. U.S. Attorney Preet Bharara in July said SAC Capital “trafficked in inside information on a scale without any known precedent in the history of hedge funds.”
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 was not named as a defendant in the case. He was repeatedly referenced in court papers at the “SAC owner” who “enabled and promoted” insider trading practices.
As part of the deal announced Monday, prosecutors said they will not assert claims for financial recovery against any present owner or shareholder of the SAC defendants for insider trading on behalf of the SAC through last Dec. 21, except for criminal fines or forfeiture claims related to insider trading profits or avoided losses. The agreement also reserved the right of prosecutors to charge others criminally.