Federal prosecutors announced a record $1.8 billion insider trading penalty against billionaire Steven A. Cohen’s embattled SAC Capital on Monday, closing a probe into the hedge fund that has transfixed Wall Street for years, and left investors with a message: “greed sometimes is not good.”
SAC was expected to plead guilty to fraud charges stemming from the case, which the FBI began investigating nearly a decade ago. The case swelled over the following years, and officials stressed on Monday that the agreement – which still needs to be approved by two judges – has no effect on any ongoing trials related to activities at SAC.
The total penalty is “steep but fair,” Preet Bharara, U.S. Attorney for the South District of New York, wrote in a letter to the court. “The agreement provides no immunity from prosecution for any individual and does not restrict the government from charging any individual for any criminal offense and seeking the maximum term of imprisonment applicable to any such violation of criminal law.”
According to the settlement, SAC will pay a $900 million fine for the Criminal Case and a $900 million penalty in the so-called “Forfeiture Action.” Because SAC previously agreed to pay $616 million, the additional payment will be $1.2 billion. In addition, the agreement means that SAC will no longer be allowed to operate as an investment advisor. Instead, it will be limited to managing Cohen’s personal assets, estimated by Forbes to be about $9.4 billion.
SAC Capital Advisors said in a statement that it takes 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 said in the statement, adding that it never "encouraged, promoted or tolerated insider trading."
The SAC companies have agreed to pay the fine without using money from outside investors, Bharara said.
The letter said the total is “the largest financial penalty in history for insider trading offenses.” The historic fine agreed to by SAC underscores the aggressive stance adopted by regulators, and comes not long before an expected $13 billion settlement between JPMorgan and the government for allegedly misleading investors about mortgage securities ahead of the financial crisis.
“The problem of insider trading is real,” FBI Assistant Director-in-Charge George Venizelos said in a release on Monday. “For companies that willfully turn a blind eye, be on notice: how your employees make money is just as important as how much they make.”
Lawyers for SAC and the U.S. Attorney's Office in Manhattan spent the last week finalizing the settlement, which will involve the filing of an amended set of charges to which the $13 billion hedge fund will plead guilty.
“As I said four years ago, at the time of our first major insider trading arrests, greed sometimes is not good,” Bharara said in a release on Monday. “Today, SAC Capital, one of the world’s largest and most powerful hedge funds, agreed to plead guilty, shut down its outside investment business, and pay the largest fine in history for insider trading offenses. That is the just and appropriate price for the pervasive and unprecedented institutional misconduct that occurred here.”
“To those on the street who venerate Michael Douglas’ character Gordan Gekko understand this: principles are just as important as your profit,” said FBI Special Agent April Brooks.
An indictment unsealed on Monday charged the entities responsible for SAC’s management “with criminal responsibility for insider trading offenses committed by numerous employees and made possible by institutional practices that encouraged the widespread solicitation and use of illegal inside information.”
A complaint filed on July 5 and unsealed on Monday alleged that “insider trading was substantial, pervasive, and on a scale without known precedent in the hedge fund industry.”
SAC will not immediately settle separate civil charges, levied this past summer by the Securities and Exchange Commission, that Cohen failed to supervise employees who engaged in insider trading.
NBC News' Tom Winter and CNBC's Kate Kelly contributed to this report. Reuters also contributed.
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First published November 4 2013, 2:11 AM