Tuesday, 27 January 2015
Last updated 3 hours ago
Nov 4 2013 | 2:53pm ET
SAC Capital Advisors, one of the largest and most successful hedge funds in history, has agreed to plead guilty to insider-trading charges that will put it out of the hedge fund business.
The Stamford, Conn.-based firm will cease to operate as an investment adviser, prosecutors said in a court filing today. The manner in which SAC will wind-down as such will be left to the Securities and Exchange Commission; SAC is barred only from managing outside capital, and can be transformed into a family office to manage founder Steven Cohen's fortune.
SAC has also agreed to pay a record $1.8 billion, half of which is a fine and the other half a forfeiture. The $616 million the firm paid earlier this year will be counted against the total.
The plea agreement must be approved by U.S. District Judges Laura Swain Taylor and Richard Holwell. The joint letter to the two was signed by SAC general counsel Peter Nussbaum and the firm's outside counsel.
The tough terms, which U.S. Attorney Preet Bharara described as "steep but fair" in the filing, proves that nothing is "too big to jail," he said in a press conference. Bharara added that, while the deal covers SAC itself, authorities will continue to pursue investigations of individuals at the firm, a group that includes Cohen himself.
Under the deal, SAC and each of the three other entities—SAC Capital Advisors LLC, CR Intrinsic Investors and Sigma Capital Management—will plead guilty to one count of securities fraud and one count of wire fraud. In addition to the huge payout and bar on managing outside capital, each firm will serve five years' probation. Bharara said that he expects the firm to wind down its investment-advisory business before that period ends.
"We take responsibility for the handful of men who pleaded guilty and whose conduct gave rise to SAC's liability," SAC said. "The tiny fraction of wrongdoers does not represent the 3,000 honest men and women who have worked at the firm during the past 21 years. SAC has never encouraged, promoted or tolerated insider trading."
SAC will formally plead guilty at a later date, if the agreement is accepted by the judges. When it does, it will cover only those instances stemming from guilty pleas by six of its former staffers, and not the alleged acts of two others who will go on trial in the coming months.
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