SAC Capital pleads not guilty to allowing insider trading

SAC Capital Advisors, the hedge fund giant charged with wire securities fraud, pleaded not guilty Friday morning to charges that it regularly allowed insider trading to occur over a 10-year period.
 
The longtime general counsel for SAC, Peter Nussbaum, entered the plea in Manhattan federal court a day after the charges were filed. On Thursday, the Justice Department accused the company of allowing the activity and making hundreds of millions of dollars illegally.

A prosecutor in the case said the evidence against the company was “voluminous,” but the Stamford-Conn.-based company said in a statement after the charges were announced that it will continue normal operations.

SAC, owned by billionaire Steven A. Cohen, said it "has never encouraged, promoted or tolerated insider trading and takes its compliance and management obligations seriously." Cohen himself has not been charged.

The U.S. District Court for the Southern District of New York brought the case against SAC, According to the indictment, between 1999 through approximately 2010, SAC "obtained material, non-public information relating to public-traded companies and traded on that inside information."

“Unlawful conduct by individual employees and an institutional indifference to that unlawful conduct resulted in insider trading that was substantial, pervasive and on a scale without known precedent in the hedge fund industry,” according to the indictment.

Hedge funds were once the rock stars of the financial industry. But if that get-rich-quick narrative was an exaggeration before the financial crisis, it has become even less true since.

To critics, hedge funds are secretive, risky, loosely regulated playgrounds for the super wealthy. And while the industry keeps expanding, its performance does not.

This year could be the fifth in a row that hedge funds underperform the Standard & Poor's 500 stock index, according to Hedge Fund Research, or HFR, which analyzes the industry. That's an unwelcome reversal: For the 20 years from 1990 to 2009, hedge fund returns beat or tied the S&P 500 15 times.

Most Americans don't have any direct involvement with hedge funds -- though their mutual funds, pensions or college's endowments might invest in one. When they do hear about one, it's often because of a scandal or other behavior that feeds the idea that hedge fund managers are billionaire pirates. Raj Rajaratnam, founder of the Galleon Group, is serving an 11-year prison sentence after being convicted of trading on inside information.

The industry gives money to communities, funding children's hospitals, schools and university research. But it spends richly on itself, too, with conferences that feature Maroon 5, complimentary cigar rolling, and models paid to mingle with attendees. Every once in a while, a fund manager will try to buy a sports team.

Steve Cohen, head of SAC Capital, was known for larger-than-life habits, scooping up Picassos, Monets and more obscure art, once spending $8 million on a 14-foot tiger shark submerged in formaldehyde.

The average hedge fund CEO earned $1.3 million last year; the average junior portfolio manager earned about $469,000, according to estimates from the publication Institutional Investor's Alpha. For some, the paydays are far more lucrative: Alpha estimates that David Tepper of Appaloosa Management made $2.2 billion in 2012, topping all managers.

Randy Shain, founder of BackTrack Reports, which investigates hedge funds for investors, thinks the industry is getting too much of a bad rap -- and he thinks it was too lauded before the financial crisis.

"Five or six years ago, they could do no wrong," Shain told the Associated Press. "Now all of a sudden people look at them and think they stink ... Neither is true."

Source: Al Jazeera and wire services