Thursday, November 7, 2013

Hedge Fund Giant SAC Capital Pleds Guilty to Criminal Insider Trading Charges

Hedge fund giant SAC Capital pled this week to criminal insider trading charges leveled by the Securities and Exchange Commission ("SEC").  As part of the plea deal, SAC Capital agreed to pay a record $1.8 billion fine for engaging in insider trading.  Additionally, prosecutors announced that SAC Capital will shatter it's investment advisory business--in essence ending the hedge funds ability to manage money for outside investors.  This does not mean that SAC Capital is dead.  The plea deal still allows SAC Capital's founder, billionaire Steve Cohen, to operate the firm as a "family office," to invest  Cohen's and other SAC Capital insider's own money. 

Cohen is one of the nation's most high flying hedge fund managers.  Cohen has an estimated net worth of $9.4 billion.  It remains an open question as to whether or not the SEC plans to bring criminal insider trading charges against Cohen.  Cohen is facing civil liability in connection with civil charges the SEC brought against him in July, for failing to supervise employees engaged in insider trading. 

Federal prosecutors alleged that SAC Capital engendered a institutional culture of blatant insider trading "that was substantial, pervasive, and on a scale without precedent."  A number of instant messages and emails among SAC Capital traders suggested and insinuated that these traders had obtained illicit inside information from corporate insiders.

SAC Capital's legal troubles have had an impact on investors.  as of January 1, 2013, SAC Capital managed $15 billion in assets, today the firm only manages approximately $9 billion in assets, mostly all of which belongs to Cohen and other employees.  SAC Capital's legal troubles are not new.  In March of 2013, SAC Capital agreed to pay $616 million to settle allegations of insider trading in a separate SEC initiated civil action.  Monday's plea deal will count this earlier amount paid in settlement of the civil charges-SAC Capital will have to come up with an additional $1.2 billion to settle the criminal charges.    

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