Sunday, 1 March 2015
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Jul 25 2013 | 11:27am ET
Capping a years-long investigation, federal prosecutors have filed criminal charges against SAC Capital Advisors, accusing the legendary hedge fund of "substantial, pervasive" insider-trading over the course of a 10-year period and imperiling the firm's very existence.
The U.S. Attorney's Office in Manhattan said today that a federal grand jury indicted SAC and its division on four counts of securities fraud and one of wire fraud. Five current or former traders at the firm, were also named in the indictment, but firm founder Steven Cohen, who was sued by the Securities and Exchange Commission last week, was not. One of the five, Richard Lee, pleaded guilty this week.
The indictment accuses SAC of "institutional indifference" to the allegedly "unlawful conduct" of its employees—eight current or former staffers have been charged previously with insider-trading—and said the scheme was "on a scale without known precedent." An accompanying civil law suit seeks the forfeiture of all of the firm's remaining assets, believe to be about $14 billion, although clients have outstanding redemption requests totaling about $5 billion.
SAC, which has consistently maintained it has done nothing wrong, had no immediate comment on the indictment.
According to the 41-page indictment, SAC's insider-trading scheme ran from 1999 through 2010. No major financial firm has ever survived a criminal indictment, although SAC may be well-placed to do so: Less than $1 billion of the money it will have left at the end of the year belongs to outside investors; most belongs to Cohen himself and to the firm's employees. Of course, if SAC is convicted—or if Cohen loses his battle with the SEC, which is seeking to bar him from trading—the firm is all-but doomed. The Stamford, Conn.-based firm has almost 1,000 employees.
And while Cohen was not charged in the indictment, prosecutors blasted him for fostering a culture "that focused on not discussing inside information too openly, rather than not seeking or trading on such information in the first place."
Lee is not related to Richard Choo-Beng Lee, a former SAC trader who has been cooperating with prosecutors for four years. The second Richard Lee began working at SAC 2009 and left the firm in 2011, only to return to it last year before leaving again in March.
Jan 23 2015 | 1:00pm ET
In our new section, FINtech Focus, we will profile one of these firms each week. While fintech is a broad category, we will be focusing on firms that specifically cater to the alternative investment industry. Read more…