STAMFORD, Conn. -- Stamford-based hedge fund SAC Capital, led by Greenwich billionaire Steven Cohen, was sentenced on criminal fraud charges Thursday, April 10, and fined $1.8 billion, the largest ever imposed in an insider trading case, prosecutors said.
U.S. District Judge Laura Taylor Swain in Manhattan formally sentenced SAC Capital LP and three related entities. A lawyer for the companies pleaded guilty last fall to wire fraud and securities fraud.
"Today marks the day of reckoning for a fund that was riddled with criminal conduct," said Preet Bharara, U.S. attorney for the Southern District of New York. "SAC fostered pervasive insider trading and failed, as a company, to question or prevent it. So far, this office has successfully convicted eight SAC employees of insider trading, and when so much criminal conduct takes place within one institution, it is appropriate to impose criminal liability on the institution itself.
"Today’s sentence affirms that when institutions flout the law in such a colossal way, they will pay a heavy price.”
The sentence included a criminal fine of $900 million and a maximum five-year term of probation for each of the SAC companies. The hedge fund must also terminate its investment advisory business, effectively closing the hedge fund to outside investors.
Together with the settlement of the civil forfeiture action, the SAC hedge fund is required to pay an additional $1.184 billion financial penalty on top of the $616 million the SAC companies have already agreed to pay to the U.S. Securities and Exchange Commission.
From 1999 through at least 2010, numerous employees of the SAC companies took part in insider trading, obtaining and trading on material, nonpublic information that they were not permitted to have, or recommended trades based on such information to SAC portfolio managers or to Cohen, the SAC owner, according to court documents and statements.
At a hearing on Nov. 8, the SAC companies pleaded guilty to all five counts in the indictment and admitted that the six employees who had previously pleaded guilty to insider trading engaged in that criminal conduct while acting within the scope of their employment of the SAC companies and for the benefit of the firm.
The plea agreement does not provide immunity from prosecution for any individual and does not restrict the government from charging any individual. Two SAC portfolio managers, Michael Steinberg and Matthew Martoma, have already been convicted of insider trading after separate jury trials.
Cohen has not been charged in the case.