Monday, November 11, 2013
NEW YORK (AP) — SAC Capital Advisors pleaded guilty to criminal fraud charges Friday, satisfying a deal with the government that requires the Connecticut-based hedge fund to pay a record $1.8 billion to settle charges that it allowed, if not encouraged, insider trading to occur for more than a decade.
The plea came in U.S. District Court in Manhattan four days after the government announced that the once influential hedge fund owned by billionaire Steven A. Cohen had reached the deal that also required it to shut down its operations to outside investors.
But Judge Laura Taylor Swain did not immediately accept the plea, saying she'd wait until a probation report is made and other papers are submitted for her review. She set a sentencing date for March 14, assuming she accepts it.
The plea was entered by Peter Nussbaum, SAC's longtime general counsel, to a single count of wire fraud and four counts of securities fraud. It was made on behalf of SAC Capital LP, SAC Capital Advisors LLC, CR Intrinsic Investors LLC and Sigma Capital Management LLC.
In pleading guilty, Nussbaum said SAC Capital wanted to "express our deep remorse for the misconduct of each individual who broke the law while employed at SAC."
"This happened on our watch, and we are responsible for that misconduct," he said.
Nussbaum then described the crimes of six former SAC employees who had pleaded guilty to insider trading charges.
"We at SAC regret terribly the misconduct of these individuals," the lawyer said. "We have paid, and are paying, a very steep price for their actions."
He expressed regret at the damage to the firm's reputation and said it was "chastened by this experience."
But a prosecutor, Arlo Devlin-Brown, insisted the crimes were "not limited to the conduct of these six individuals. Additional people engaged in insider trading."
He cited "institutional failure," saying the firm hired individuals with proven access to insiders at public companies and failed to effectively monitor its employees even when their actions should have served notice that they may be based on inside information.
Devlin-Brown said a tone was set by senior management at the company that allowed insider trading to occur and prosecutors would have proven so at trial through the use of witnesses, recorded conversations, trading records and other documents.
"Between 1999 and 2010, numerous portfolio managers and analysts engaged in insider trading in at least 20 public companies," the assistant U.S. attorney said. He also said the company encouraged its employees to "aggressively pursue" an edge in information, regardless of "whether that edge was lawfully obtained."
Devlin-Brown also noted that the agreement bans the company from making any public statements for five years that would conflict with or disavow the plea.
The company on Monday replaced a sentence in a statement that claimed the company "never encouraged, promoted or tolerated insider trading" with one saying: "Even one person crossing the line into illegal behavior is too many and we greatly regret this conduct occurred."
On Friday, the judge listened to a statement from one objector to the plea, Ethan Wohl, who noted that "no one is going to jail for the crime."
Afterward, lawyers for the company declined comment.
U.S. Attorney Preet Bharara issued a statement, saying the SAC Capital companies "pled guilty to serious federal crimes that undermined the integrity of our securities markets. Financial institutions should know that they are not automatically immune from prosecution, and we will hold companies, as well as individuals, accountable wherever appropriate."
The plea does not stop the government from continuing a criminal investigation that already has led to criminal charges against at least eight former SAC employees. Most have pleaded guilty.
Cohen is not among those criminally charged, although the Securities and Exchange Commission accused him in a civil action in July 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 bar him from managing investor funds. Cohen has disputed the allegations.
SAC Capital rose to prominence over the last two decades as Cohen created a competitive environment for portfolio managers with huge bonuses for trading successes and swift punishment for losses.
The government has said that the breakneck pressure at the firm contributed to an environment where the rules were bent and laws were sometimes broken to achieve success.
As the company grew, so did Cohen's riches and reputation. He became 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.
U.S. Attorney Preet Bharara told a news conference Monday that the settlement should send the message that "no institution should rest easy in the belief that it is too big to jail."
The plea calls for the company to pay a $900 million fine and forfeit another $900 million to the federal government, though $616 million that SAC companies have already agreed to pay to settle parallel actions by the U.S. Securities and Exchange Commission will be deducted from the $1.8 billion.