Hedge fund giant SAC Capital is moving close to an agreement with prosecutors to settle insider-trading charges for more than $1 billion, which would be the largest penalty of its kind, sources tell CNBC.
According to the sources familiar with the matter, the settlement could be final by the end of this month. However, SAC is still negotiating with the government over a host of non-financial issues.
Meanwhile, founder Steven A. Cohen has scaled down his own trading activities, from $4 billion to near $1 billion currently, the sources add.
An SAC spokesman reached by CNBC had no immediate comment.
Three or four years ago Cohen, who owns the entire firm himself, traded as much as $4 billion in capital on a given day, a significant proportion of its assets under management.
Today, as SAC labors to settle criminal charges of insider-trading, a deal that could lead to the record fine, the size of his personal trading book has sunk to as low as $1billion, said someone who works with him.
Friends and business associates say that Cohen's pullback is for reasons both structural and legal.
This year, as SAC faced indictment for alleged insider-trading of stocks and Cohen was sued in civil court for failing to supervise a series of errant employees, the founder has had to spend far more time on legal matters, frequently taking him away from the company's Stamford, Connecticut trading desk, said one of his employees. (SAC has pleaded not guilty to the fraud charges and disputes the civil ones.)
But he's also been parsing out some of his own money under management to subordinates in recent years.
In early 2010, for instance, hampered by back pain and the onset of the insider-trading probe that resulted in SAC's charges this July, Cohen handed off some of his usual trading to staff members.
"Between all the crazy press" and his health problems, he told Vanity Fairin an interview that summer, "I've started delegating more of the trading responsibility to others in the firm."
That meant that some of Cohen's personal capital—which had typically ranged between $3 billion and $4 billion depending on the amount of borrowed capital, or leverage, according to someone who works with him—was parsed out to portfolio managers who focused on specific stock sectors.
That left him with a book of roughly $2 billion, a smaller chunk of the firm's $12 billion under management at the time.
But the resolution of the criminal and civil suits could result in further changes to Cohen's own trading, an issue associates say he has been mindful of in recent months.
Officials at the Securities and Exchange Commission, in suing him for failed supervision, for instance said they would seek to bar him from the securities industry, which would put an end to much of his trading.
And the idea of becoming a family office, a move that would ostensibly shield outside investors from misconduct by SAC traders, has long been on the table as part of a potential SEC settlement. (Their case has been put on hold, however, until its criminal counterpart is resolved.)
SAC's founder wants to keep his options open, associates say—which could explain why he's pared back his own book but not closed it entirely.
"Steve doesn't like to be forced into anything and my guess is that the specter of the government issues would have pushed him to get in front of those issues in terms of ensuring that he had proper liquidity," said a trader who knows him.
Cohen himself did not respond to an e-mailed request for comment, and a SAC spokesman declined to comment on the state of settlement talks.