NEW YORK – SAC Capital Advisors will plead guilty to criminal fraud charges, stop investing money for others and pay $1.8 billion – the largest financial penalty in history for insider trading – to resolve criminal and civil claims against the hedge fund giant, the government announced Monday.
The government said in a letter to judges presiding over Manhattan cases that the “proposed global resolution” of the criminal and civil cases against SAC Capital Advisors and related companies also includes an agreement that SAC will cease operating as an investment adviser and will not accept any additional funds from third-party investors.
The company will pay a $900 million fine and forfeit another $900 million to the federal government, though $616 million that SAC companies have already agreed to pay to settle parallel actions by the U.S. Securities and Exchange Commission will be deducted from the $1.8 billion.
The government called the penalties “steep but fair” and “commensurate with the breadth and duration of the charged criminal conduct.”
Early in the afternoon, SAC Capital said in a statement: “We take responsibility for the handful of men who pleaded guilty and whose conduct gave rise to SAC’s liability. 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.”
Later, the company revised and softened its statement, subtracting “tiny fraction” and replacing the last sentence with a more remorseful tone: “Even one person crossing the line into illegal behavior is too many and we greatly regret this conduct occurred.”
U.S. Attorney Preet Bharara told a news conference the settlement should send the message that “no institution should rest easy in the belief that it is too big to jail.” He said it was up to the courts to decide whether to accept the plea deal. No date for a plea was immediately set.
In a statement, FBI Assistant Director George Venizelos said SAC Capital’s plea demonstrates “that cheating and breaking the law were not only permitted but allowed to persist.”
The deal did not resolve a civil case that the SEC brought in July against SAC Capital’s billionaire founder, Steven A. Cohen. He was accused of failing to prevent insider trading at the company, which he founded in 1992 and which bears his initials. The SEC sought to fine Cohen and effectively shut him down by barring him from managing investor funds. Cohen has disputed the SEC’s allegations.
Over two decades, Cohen built SAC Capital into one of the biggest and most envied hedge funds. With its hothouse competitive environment for portfolio managers – and outsized bonuses for trading success and swift punishment for losses – the company achieved stellar success.
Criminal charges were filed in July against the Stamford, Conn.-based SAC Capital. As part of the plea, SAC Capital LP, SAC Capital Advisors LLC, CR Intrinsic Investors LLC and Sigma Capital Management LLC, will plead guilty to a single count of wire fraud and four counts of securities fraud, the government said.