Federal prosecutors are preparing to announce criminal charges as early as this week against hedge fund giant SAC Capital, NBC News has learned.
The hedge fund, SAC Capital Advisors LP, has been the target of an investigation that started seven years ago by the FBI into alleged insider trading and wire fraud, according to multiple sources familiar with the case.
A criminal charge against SAC Capital would be one of the most high-profile corporate cases since U.S. prosecutors indicted accounting firm Arthur Andersen for its role in the Enron scandal, a move that effectively forced the audit firm to go out of business.
Authorities do not plan to criminally charge hedge fund honcho Steven A. Cohen Thursday, however. Rather, Cohen will face an administrative hearing where he could be accused of failing to supervise the wrong doers. The Securities and Exchange Commission could fine him and bar him from the securities industry, which would mean an end to SAC Capital (SAC are Cohen’s initials).
Federal prosecutors are still looking for ways to build a criminal case against Cohen, who has made billions from the Stamford, Conn.-based hedge fund.
Several legal experts, including former federal prosecutors, said the decision to charge the hedge fund, but not Cohen, with wrongdoing would be a tacit admission that the nearly seven-year investigation failed to find sufficient evidence of trading on illicit inside information by Cohen.
They continue to investigate the activities of some of Cohen’s former employees, including former technology stock trader Dipak Patel, a source familiar with the matter told Reuters.
Patel, who once managed up to $1 billion for Cohen and left SAC Capital in 2011, was implicated in potentially improper trading by former SAC Capital analyst Wesley Wang, who pleaded guilty last July and became a cooperating witness for federal authorities.
Federal prosecutors had debated for months whether to file a criminal charge against Cohen's 21-year-old hedge fund. The fund is one of the largest payers of commissions on Wall Street, generating more than $300 million a year in trading fees alone for Wall Street brokerages.
Wall Street firms that lend money and trade with SAC Capital would likely stop doing so if a criminal charge is filed. However, since more than $15 billion of the firm's assets represents money for Cohen and his employees, SAC Capital has substantial resources to continue functioning.
Federal authorities began looking into the possibility of filing a criminal charge against SAC Capital after former portfolio manager Jon Horvath pleaded guilty to passing on inside information about Dell during the summer of 2008 to his supervisor Michael Steinberg and traders at other hedge funds.
Earlier this year, prosecutors charged Steinberg with insider trading involving shares of Dell. Steinberg has pleaded not guilty.
To date, nine former and current SAC Capital employees have been implicated or charged with wrongful trading while at the firm.
For now, Wall Street appears to be shrugging at news reports that federal prosecutors are getting closer to filing criminal charges against SAC Capital.
Wall Street firms are continuing to trade with the fund as usual, according to several market sources.
Reporting by Jonathan Dienst, Joe Valiquette and Richard Esposito of NBC News and Matthew Goldstein and Emily Flitter of Reuters. Additional reporting by Katya Wachtel, Jennifer Ablan and Svea Herbst-Bayliss of Reuters.
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