SAC Capital agrees to plead guilty in insider trading case

Founder remains target of separate review

Hedge fund manager Steven A. Cohen could still face charges.
Steve Marcus/Reuters/File
Hedge fund manager Steven A. Cohen could still face charges.

WASHINGTON — The beleaguered hedge fund owned by billionaire Steven A. Cohen agreed to pay $1.2 billion to settle charges accusing it of encouraging rampant insider trading for more than a decade, a record deal that could sink one of Wall Street’s most successful hedge funds.

As part of the deal, announced Monday by US Attorney Preet Bharara in Manhattan, SAC Capital Advisors has agreed to plead guilty to every one of the five counts in the indictment unveiled in July. It also agreed stop managing the money of outside investors.

The deal marks the results of a multiyear effort to close in on a storied hedge fund that has racked up stellar profits since Cohen founded it in 1992. It is also one of the most high-profile blows in the government’s long-running push to cripple insider trading on Wall Street.


The hedge fund agreed to pay $900 million in fines and forfeit another $900 million, for a total of $1.8 billion. But the hedge fund will receive a $616 million credit for a civil settlement it reached with the Securities and Exchange Commission earlier this year. That deal, which awaits court approval, allowed the hedge fund to resolve two civil lawsuits that accused two SAC affiliates of insider trading. The fund did not admit wrongdoing in that case.

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‘‘It’s the end of SAC as the markets have come to know it,’’ said Jacob Frenkel, a former federal prosecutor and a former SEC enforcement lawyer.

The settlements reached so far by the Justice Department and the SEC do not accuse Cohen of wrongdoing. But Cohen remains the target of a separate legal proceeding by the SEC, which accuses the billionaire of failing to supervise two of the firm’s employees. If the SEC wins, Cohen might be banned from the industry for life.

On Monday, the Justice Department implied that Cohen remains in its crosshairs, too.

‘‘The Agreement provides no immunity from prosecution for any individual and does not restrict the Government from charging any individual for any criminal offense,’’ a document submitted by Bharara said.


The settlement announced Monday is likely to eat into considerable wealth amassed by Cohen, whose net worth is estimated at $9 billion by Forbes magazine. Investors have pulled billions of dollars from Cohen’s hedge fund, which managed $15 billion in assets at its peak. Nearly all the money left over belongs to Cohen.

When Bharara unveiled the criminal charges against SAC in July, Bharara described the hedge fund as a ‘‘veritable magnet for market cheaters.’’

The indictment portrayed a pressure-cooker culture that encouraged rampant illegal trading in the quest for profits. Bharara said that SAC ‘‘seeded itself’’ with corrupt traders and then turned a blind eye to suspicious activity, which is why he went after the company and not just its employees.

In the past few years, eight SAC employees have either been accused or convicted of insider trading that took place from 1999 through 2010. Five have pled guilty, and two, Mathew Martoma and Michael Steinberg, are fighting the allegations in court.

Prosecutors alleged that the hedge fund failed to detect any of these employees’ misconduct. It even hired one of them, Richard Lee, despite warnings that he had been involved in an ‘‘insider trading group’’ at his prior firm, prosecutors said.


Only once in its history did SAC identify possible insider trading at its firm, the indictment said. But it did not fire the individuals involved or report the matter to regulators. .


Prosecutors did not mention Cohen by name in the indictment. But they did allege that the corrupt employees at times recommended trades to the ‘‘SAC owner’’ based on inside information.

Tying Cohen directly to insider trading has proved elusive, in part because none of the current or former employees charged turned on him.