SAC, Prosecutors In Deal To Keep Hedge Fund Trading

Aug 9 2013 | 11:25am ET

SAC Capital Advisors and federal prosecutors have reached an agreement that will allow the hedge fund to continue operating and investing even as it battles criminal fraud allegations.

The protective order and related application were submitted yesterday to U.S. District Judge Richard Sullivan's approval.

Under the deal, SAC must maintain at least 85% of the "aggregate value" of assets owned by its "entity defendants" as of July 1, some three weeks before prosecutors charged the firm with insider-trading. Should assets fall below that specified level during a month, SAC would have to "replenish" them within five days of the end of the month.

The agreement distinguishes between the "entity defendants" and the "investment funds" managed for outside investors. The former is thought to amount to about $10 billion of the firm's $14 billion in assets, including those assets belonging to firm founder Steven Cohen.

Manhattan U.S. Attorney Preet Bharara has said he has no intention of putting SAC out of business until after it is tried. Prosecutors have drawn up a parallel civil lawsuit that would seek forfeiture of all assets belonging to the "entity defendants."

The agreement allowing SAC to continue operating was hammered out over the last two weeks.

The criminal complaint against the hedge fund alleges that SAC engaged in a decade-long insider-trading scheme, one that has ensnared 10 current and former SAC employees, including two money managers currently facing trial. Cohen himself has not been charged with any wrongdoing, but has been hit with a civil lawsuit by the Securities and Exchange Commission for failing to supervise those two employees, Mathew Martoma and Michael Steinberg.

Bharara said this week that the investigation into SAC is ongoing. The protective order gives prosecutors the ability to seek even more money from SAC if it uncovers further alleged insider-trading as the criminal case proceeds.

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