Hedge fund giant to pay $1.8B insider trading charge

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.

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 was up to the courts to decide whether to accept the plea deal. No date for a plea was immediately set.

The government said (pdf) 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.

Before Monday's news, SAC had pleaded not guilty to the charges in July.

The company will pay a $900 million fine and forfeit another $900 million to the federal government. The government called the penalties "steep but fair" and "commensurate with the breadth and duration of the charged criminal conduct."

SAC Capital said in a statement: "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."

The deal did not resolve a civil case that the Securities and Exchange Commission (SEC) — government financial regulator — 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 competitive environment for portfolio managers — and outsized 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.

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 from 1999 to 2010 as its portfolio managers and analysts traded on inside information from at least 20 public companies. Bharara in July said SAC Capital "trafficked in inside information on a scale without any known precedent in the history of hedge funds."

At least eight former SAC employees have previously been criminally charged with insider trading and most have pleaded guilty. One is a former portfolio manager at an SAC affiliate who was accused of using illegal tips about an experimental Alzheimer's drug to net more than $276 million for his fund and others.

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 wasn't named as a defendant in the case. He was repeatedly referenced in court papers as the "SAC owner" who "enabled and promoted" insider trading practices.

The Associated Press