SAC Capital, once thought to be a world leading money manager, has plead guilty to four counts of securities fraud and one count of wire fraud.
Steve Cohen’s SAC Capital Advisors hedge fund pleaded guilty to fraud charges Friday as part of a $1.2bn deal to resolve a long-running insider trading investigation.
At a court hearing in Manhattan, SAC general counsel Peter Nussbaum entered the guilty plea to four counts of securities and one count of wire fraud charges, a crucial step toward ratification of the fund’s record insider trading accord.
US district judge Laura Taylor Swain said she would wait to decide whether to accept SAC’s guilty plea until after a pre-sentencing report was filed.
Under the plea agreement SAC reached with prosecutors, the hedge fund has agreed to pay $900 million in penalties to resolve the criminal case unveiled against it in July.
A federal judge on Wednesday signed off on a separate $900m judgment in a civil forfeiture action filed at the same time against SAC.
Under the civil deal, the hedge fund will only have to pay $284m, after getting credit for $616 million in settlements in related insider trading cases by the Securities and Exchange Commission.
SAC has reserved its right to withdraw its plea if Swain does not impose the penalties negotiated with prosecutors.
Apparently, much of the firms’ successful returns were based on insider information, giving them an unfair advantage on the market. Two former employees were charged with insider trading in 2011 and since then, charges have been brought against many traders who worked for (or with) SAC Capital.
A 2013 article in Yahoo! Finance reported that SAC Capital Advisors had been under investigation by the Securities and Exchange Commission (SEC) for six years. In November 2010, the SEC conducted raids at the offices of investment companies run by former SAC traders. Several days later SAC received what they described as “extraordinarily broad” subpoenas . In February 2011, two former employees were charged with insider trading. In November 2012 federal prosecutors levied charges against additional former SAC Capital traders. Portfolio manager Michael Steinberg was arrested in March 2013 and accused of using inside information to make $1.4 million in profits for SAC Capital. In June 2013 nine former SAC employees were charged with conspiracy and securities fraud.
In July 2013 the SEC filed a civil suit against SAC for failing to properly supervise its traders and the U.S. Department of Justice “filed a five count criminal indictment by a federal grand jury, including four counts of securities fraud and one count of wire fraud.” SAC reports that it will “vigorously fight” the accusations and charges. In November 2013, SAC Capital agreed to plead guilty to all counts of the indictment, stop managing funds for outsiders, and pay a $1.2 billion fine.