Investor Clawbacks An Open Question In SAC Case

Jul 29 2013 | 11:23am ET

If SAC Capital Advisors is convicted of insider trading, will its investors be forced to pony up their shares of its ill-gotten gains?

Federal prosecutors last week filed criminal fraud charges against the hedge fund. In previous hedge fund fraud cases, including the Bernard Madoff Ponzi scheme, criminal convictions were followed by civil actions seek disgorgement not only from the fraudster him, but also from investors who benefitted from the allegedly illegal actions. In the SAC case, prosecutors say the insider-trading scheme went on for 11 years.

Other hedge fund cases have no featured investor clawback attempts, including that against Galleon Group founder Raj Rajaratnam.

Tavakoli Structured Finance's Janet Tavakoli suggests that, if SAC is convicted, an attempt to seize some of its hundreds of millions of dollars in allegedly illicit gains is likely. Such a move would mean that SAC's outside investors—almost all of whom have moved to redeem their money from the hedge fund—would not be safe.

Others, including The New York Times' Gretchen Morgenson, have concluded clawbacks are unlikely. Morgenson notes that Manhattan U.S. Attorney Preet Bharara said Thursday, "We are always mindful to minimize risks to third party investors. In other words, we have not restrained any money, and we will discuss with the company a reasonable method going forward to protect everyone's legitimate interests."

In addition, prosecutors have said they will seek some $10 billion from SAC if it is convicted—more than enough to cover its alleged ill-gotten gains.


In Depth

Kettera Q&A: The Advantages of Alternative Investment Platforms

Oct 28 2016 | 5:52pm ET

The past several years have seen a distinct push towards easier and cheaper access...

Lifestyle

Midtown's Plaza District Fades As Manhattan Office Landscape Shifts

Nov 22 2016 | 6:32pm ET

Lower leasing costs, more efficient office space and the hope of projecting an image...

Guest Contributor

Nowhere to Hide: Why the Future of Asset Management Depends on Innovation

Nov 15 2016 | 6:55pm ET

Information technology has reshaped the asset management industry’s periphery,...

 

From the current issue of

Chicago-based independent futures brokerage and clearing firm R.J. O’Brien & Associates (RJO) has hired industry veteran Daniel Staniford as Executive Director, responsible for the firm’s institutional business development in New York and London.

AVAILABLE NOW at BARNES & NOBLE

NEWSTAND LOCATOR