Feds charge hedge fund SAC Capital in NY case

By Tom Hays

Associated Press

Published: Thursday, July 25 2013 11:37 a.m. MDT

In this Thursday, Feb. 10, 2011, photo, S.A.C. Capital Partners headquarters is shown,in Stamford, Conn. The hedge fund operated by embattled billionaire Steven A. Cohen was hit with white-collar criminal charges Thursday, July 25, 2013, that accused the fund of making hundreds of millions of dollars illegally, and a related government lawsuit said insider trading was pervasive and unprecedented at the firm.

Mark Lennihan, Associated Press

NEW YORK — The hedge fund operated by embattled billionaire Steven A. Cohen made hundreds of millions of dollars illegally and allowed unprecedented and pervasive insider trading to go on unchecked for years, federal prosecutors said in an indictment unsealed Thursday.

SAC Capital Advisors was charged in an indictment with wire fraud and four counts of securities fraud. Prosecutors allege the crimes were carried out from 1999 through at least 2010.

Cohen himself wasn't named as a defendant in the criminal case, but the charges could threaten to topple a firm he founded and that once managed $15 billion in assets. In court papers filed in federal court in Manhattan, the government sought the forfeiture of "any and all" assets of SAC and related companies it identified.

The charges came less than a week after federal regulators accused him in a related civil case of failing to prevent insider trading at the firm.

A spokesman for SAC and a lawyer for Cohen did not immediately respond to messages for comment Thursday. Last week, an SAC Capital spokesman said that the related allegations brought by the Securities and Exchange Commission have "no merit" and that "Steve Cohen acted appropriately at all times."

In a statement, FBI Assistant Director George Venizelos called it "a case about corporate conduct and corporate responsibility. SAC Capital and its management fostered a culture of permissiveness. SAC not only tolerated cheating, it encouraged it."

The Justice Department's also filed a related civil lawsuit against SAC on Thursday in Manhattan. Both it and the indictment said insider trading at the company was "substantial, pervasive and on a scale without known precedent in the hedge fund industry."

In court papers, the government did not identify Cohen by name but blasted the "SAC owner," saying he purposely tried to hire portfolio managers and analysts who knew employees of public companies likely to possess inside information.

The government said he "enabled and promoted the insider trading scheme by ignoring indications that trading recommendations were based on inside information" and failed to question new employee candidates who implied their trading advantage was based on sources of inside information.

It said Cohen "also furthered the insider trading scheme by fostering a culture that focused on not discussing inside information too openly, rather than not seeking or trading on such information in the first place."

The criminal charges said SAC's "relentless pursuit of an information 'edge' fostered a business culture within SAC in which there was no meaningful commitment to ensure that such 'edge' came from legitimate research and not inside information."

It added: "The predictable and foreseeable result, as charged herein, was systematic insider trading by the SAC entity defendants resulting in hundreds of millions of dollars of illegal profits and avoided losses at the expense of members of the investing public."

The indictment said SAC carried out the insider trading scheme with a staff of numerous portfolio managers and research analysts "who engaged in a pattern of obtaining insider information from dozens of publicly-traded companies across multiple industry sectors."

It said SAC sought to hire portfolio managers and research analysts with proven access to public company contacts likely to possess inside information. The managers and analysts weren't questioned when they made trading recommendations that appeared to be based on inside information, the indictment said.

The problem was compounded when SAC on numerous occasions failed to use effective compliance procedures or practices designed to root out wrongdoing. The pursuit of a trading edge overwhelmed limited SAC compliance systems, prosecutors said.

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