SAC Capital reaches tentative insider trading deal
NEW YORK — SAC Capital, the embattled hedge fund indicted on insider trading charges, has reached a tentative deal to settle the case and pay more than $1 billion in fines.
The fund, run by the billionaire investor Steven A. Cohen, struck the deal with federal prosecutors in New York in recent days, according to two people briefed on the matter.
Although the exact amount of the fine is unclear, prosecutors have been seeking a $1.8 billion penalty and a guilty plea from SAC, the people said. SAC’s lawyers were urging the government to deduct from that amount the $616 million the fund has already paid to the Securities and Exchange Commission, a regulator that previously issued civil charges against the firm’s subsidiaries.
If SAC were to balk, the people said, the government threatened to pursue a much larger fine against the fund. And time was limited. Michael S. Steinberg, one of Cohen’s former employees who is central to the indictment of SAC, will stand trial for criminal insider trading charges next month. The government, according to one of the people briefed on the matter, was contemplating doubling its demand to more than $3 billion if SAC refused to settle and Steinberg was subsequently convicted.
The people briefed on the matter, who spoke on the condition of anonymity, cautioned that the deal was tentative and could still fall apart.
The pact is emerging just months after federal prosecutors in New York and the FBI announced the indictment of SAC, calling the fund “a magnet for market cheaters.” It was a rare criminal action against a large corporation.
The indictment, released in July, cited the many prosecutions of SAC’s former employees as proof that the firm and its units had permitted a “systematic” insider trading scheme to unfold from 1999 to 2010. Six former SAC employees have pleaded guilty to insider trading while at the fund. Two others, Steinberg and Mathew Martoma, are fighting the charges and have trials scheduled.
And Cohen, 57, is not yet in the clear. He still faces a separate lawsuit from the SEC, which accused him of failing to reasonably supervise employees who are accused of insider trading. The SEC could seek a variety of penalties in that case, including banning him from the business.