Facing Ultimatum, SAC Seen Leaning Towards A Deal

Oct 9 2013 | 11:09am ET

Federal prosecutors have given SAC Capital Advisors an ultimatum—one that the hedge fund is increasingly likely to accept.

The U.S. Attorney's Office in Manhattan has given SAC until November to reach a deal resolving the criminal insider-trading charges against it. If it fails to do so, prosecutors said it will have to pay more than the $1.8 billion currently on the table.

The precise deadline is the trial of SAC portfolio manager Michael Steinberg, which begins on Nov. 18, the Financial Times reports. Steinberg is accused of trading on confidential information about technology companies acquired by his former analyst, who has pleaded guilty and is cooperating.

SAC would have to plead guilty to a criminal charge as part of any settlement with prosecutors.

SAC is leaning towards doing so and striking a deal, The New York Times reports. The settlement could also resolve the civil charges pending against firm founder Steven Cohen, which threaten to strip him of the right to manage outside capital.

SAC would become a family office, managing Cohen's money exclusively, after a settlement.

During a meeting with prosecutors last month, SAC argued that the $1.8 billion levy was too high, and that any fine should be reduced by the $616 million SAC has already paid to settle other insider-trading allegations. The hedge fund is expected to present a counter-offer.

Should SAC go to trial, prosecutors would not have much difficulty proving their case; six former SAC employees have already pleaded guilty to insider-trading, and SAC can be held responsible for their actions. SAC could wait to see whether Steinberg is acquitted, and use that as leverage if he is. However, none of the people ensnared by the government's insider-trading crackdown who have gone to trial have been acquitted.

If Steinberg is convicted and SAC does not reach a settlement, prosecutors have already laid the groundwork to go after all of the firm's assets, which are substantially all of Cohen's assets.

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