Federal Judge Approves SAC's $1.8B Settlement With DOJ

Apr 10 2014 | 1:14pm ET

A federal judge has accepted SAC Capital Advisors criminal settlement with the U.S. Department of Justice that will see the hedge fund plead guilty to insider trading and pay a record $1.8 billion penalty.

U.S. District Judge Laura Taylor Swain approved the the guilty plea from Steve Cohen's hedge fund during a hearing on Thursday. The penalty includes a $900 million criminal penalty and a $900 million civil forfeiture, reduced to $284 million because of an earlier payment to the Securities and Exchange Commission.

"These crimes clearly were motivated by greed, and these breaches of the public trust require serious penalties," Swain said. "The defendants' crimes were striking in their magnitude and strikingly indicative of a lack of respect for the law."   

Under the deal, SAC and three other entities—SAC Capital Advisors LLC, CR Intrinsic Investors and Sigma Capital Management—pleaded guilty to four counts of securities fraud and one count of wire fraud. In addition to the huge payout and a bar on managing outside capital, each firm will serve five years' probation.

SAC Capital Advisors, one of the largest and most successful hedge funds in history, has ceased to operate as an investment advisor. The Stamford, Conn.-based firm has been transformed into a family office to manage founder Steven Cohen's estimated $9 billion fortune and re-baptized Point72 Asset Management. As part of the settlement, Judge Swain approved the appointment of former federal prosecutor Bart Schwartz as Point72's independent compliance monitor.

In a letter to Judge Swain prior to Thursday's hearing, SAC lawyer Martin Klotz wrote that "the defendants are deeply remorseful for the misconduct of each of the individuals who broke the law while employed by them. Even one person crossing the line into illegal behavior is unacceptable. The defendants are chastened by this experience, but are determined to learn from it."

U.S. Attorney Preet Bharara in Manhattan, the man behind the insider-trading crackdown that has resulted in 80 individuals being convicted at trial or pleading guilty since October 2009, issued a statement which said:

“Today marks the day of reckoning for a fund that was riddled with criminal conduct. SAC fostered pervasive insider trading and failed, as a company, to question or prevent it. Today's sentence affirms that when institutions flout the law in such a colossal way, they will pay a heavy price.”

Bharara's convictions include those of SAC portfolio managers Michael Steinberg and Mathew Martoma.

Cohen himself has not been criminally charged but faces an SEC administrative action to bar him from the securities industry for failing to supervise the SAC employees found guilty of insider-trading. Cohen denies the allegations but, according to Reuters, has been in contact with the regulator regarding a possible settlement.

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