Feds File Criminal Charges Against SAC Capital

×
steven cohen hedge fund manager sac capital advisors sec files charges
Scott Eells/Bloomberg via Getty ImagesSAC Capital Advisors founder Steven Cohen
By LARRY NEUMEISTER
and TOM HAYS


NEW YORK -- The hedge fund operated by embattled billionaire Steven A. Cohen was hit with white-collar criminal charges Thursday 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.

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 didn't 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 "Steven Cohen acted appropriately at all times."

The Justice Department's related civil lawsuit, which was filed against SAC on Thursday in Manhattan, 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 didn't 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.

Barry Boss, a criminal defense lawyer in Washington, said the frequent references to Cohen in government court papers were a way for prosecutors to cast aspersions of guilt without providing the due process normally required before someone is labeled a criminal.

"Given a choice between being besmirched in the indictment and being named in the indictment, I think somebody would take besmirched every day," he said.

SAC Capital has been at the center of one of the biggest insider-trading fraud cases in history. Four employees have already been criminally charged with insider trading, and two of them have pleaded guilty. And an SAC affiliate has agreed to pay $615 million to settle SEC charges.

Cohen, who lives in Greenwich, Conn., is one of the highest profile figures in American finance and one of the richest men in America. He is among the handful of upper-tier hedge fund managers on Wall Street who pull in about $1 billion a year in compensation.

The SEC alleged that Cohen received "highly suspicious information that should have caused any reasonable hedge fund manager in Cohen's position to take prompt action to determine whether employees under his supervision were engaged in unlawful conduct and to prevent violations of the federal securities laws."

An SAC portfolio manager, Mathew Martoma, has pleaded not guilty to insider-trading charges accusing him of earning $9 million in bonuses after persuading a medical professor to leak secret data from an Alzheimer's disease trial between 2006 and 2008. Authorities haven't disputed reports that Cohen is the "Hedge Fund Owner" repeatedly referenced in a criminal complaint against Martoma.

The papers describe how Cohen rejected the advice of his own analysts and instead bet heavily on Martoma's tips about secret data from a study of an experimental drug. After learning through Martoma in 2008 that experiments weren't going well, Cohen instructed his top trader to begin dumping stock, "and to do so in a way to not alert anyone else," the papers say.


Even in the high-flying hedge fund world, SAC Capital stands out for its mammoth returns. Meanwhile, Cohen became one of the highest-profile figures in U.S. finance and the 40th-richest American, with a net worth of $8.8 billion, according to Forbes. Of the roughly $15 billion in assets that SAC Capital managed as of earlier this year, about half belonged to Cohen and his employees and half was client money.

In the past, the Justice Department has been wary of bringing criminal prosecutions against entire organizations out of fear of the collateral damage -- that going further than fining a company could kill a business. The accounting firm Arthur Andersen went under after it was convicted in 2002 of destroying Enron-related documents before the energy giant's collapse -- an outcome that cost tens of thousands of jobs.

U.S. Attorney Preet Bharara, in remarks last week not specific to the SAC Capital probe, alluded to the Arthur Anderson episode.

"We have a lot of power to bring cases like that and we don't do it a lot in part because of Arthur Andersen, and part because we care about what the interest of justice requires and we care about collateral consequences," Bharara said. "But there are circumstances in which it is appropriate to do, particularly when you have continued malfeasance over time among a large number of people."

There are already reports that SAC's clients are pulling their money from the Stamford, Conn.-based firm. It's not always an easy process: Clients usually have to give notice of at least 30 days. Hedge funds also can write into their contracts that they'll deny withdrawal requests if too many clients want to pull out money at the same time.

In the face of mounting legal woes, Cohen has kept up his philanthropic efforts. The Steven and Alexandra Cohen Foundation, named for Cohen and his wife, recently helped sponsor a $10,000-per-table poker tournament in Manhattan that raised money for an education advocacy group.

-Associated Press writers Christina Rexrode in New York and Marcy Gordon in Washington contributed to this report.


Increase your money and finance knowledge from home

Building Credit from Scratch

Start building credit...now.

View Course »

Goal Setting

Want to succeed? Then you need goals!

View Course »

Add a Comment

*0 / 3000 Character Maximum

102 Comments

Filter by:
thefosz

...



In all likelihood Cohen will be saved by the Republican Party. To the Republican Party Cohen is the perfect business example.


...

July 26 2013 at 10:28 AM Report abuse rate up rate down Reply
k4jlp

What about the control of commodity prices with pump and dumps via high speed trading software? What a scam, don't even have to take delivery of the product.

July 25 2013 at 4:59 PM Report abuse +1 rate up rate down Reply
The Paterfamilia

This Site, Writer and The Associated Press are all compliant in the corruption for the Lies Written and Published here... Be Advised, WE KNOW...

July 25 2013 at 4:59 PM Report abuse +1 rate up rate down Reply
1 reply to The Paterfamilia's comment
setanta54s_back

the ENTIRE LAME STREAM MEDIA is now the ONE STREAM MEDIYUUH--not just huffing_ho,aol,kos etc--
THE ENTIRE MEDIYUUH
with THE EXCEPTION OF A FEW WEBISTES OUT HERE via the internet.

canada free press
free republic
to start.
good sources for a FREE PEOPLE.

put the ONE STREAM outta business and FAST.
BOYCOTT them literally and their sponsors the same--DON'T EVEN PUT THEM ON NOTICE EITHER
and WE WILL NOT BAIL THEM OUT EITHER.
they gave us carter,clitton and obummer.

they REPEAT LIE AFTER LIE on palin etc.
basically ANY CONSTITUTIONAL CONSERVATIVE.

now WE ALSO KNOW there IS ONLY ONE
political party as in THE UNI-PARTY
the gOPeeeeeee was warned years ago on the CRAAAAAAAAAAAAAAP
THEY PRESENT AS CANDIDATES.
they REFUSED TO HEAR US.
so we have rinos....

may God Almighty raise up proper men and women TO REPRESENT THE TRUE AMERICANS.

get out there and EDUCATE them all.
carry a copy of the Constitution--EXPLAIN HOW THE GOVERNMENT IS SUPPOSED TO WORK
and the FACT THAT THE POLITICIANS ARE SUPPOSED TO WORK FOR US.

same with ONE PERSON--1 VOTE
and stop all the bs with early voting,ABUSE OF THE ABSENTEE BALLOT,
voter registration FRAUD,ONLINE REGISTRATIONS/same day registration AND VOTING on and on THEIR FRAUD GOES ON
AND AGAIN...where IS THE OUTRAGE ?
and
ENSURE THAT THE MILITARY GETS THEIR BALLOTS ON TIME\BUT
THE BALLOTS GET BACK ON TIME.


the bs must end.

THANK YOU


aaaaaaaaaaaaaand a big SHOUT OUT to the folKKers over at the nsa.

guys ? make sure this gets out and SPARE ME the trouble !

July 26 2013 at 12:00 AM Report abuse -1 rate up rate down Reply
The Paterfamilia

Might as well be the SEC rather than the SAC getting charged for corruption... Thats where it comes from anyway... Equal Protection FROM the Law...

The NSA is what we should be looking into... NOTE: Every time Main Stream News talks about the CORRUPT Government HACKS... They only bring up how the NSA is doing PHONES...

Computers count votes!!! If they can break into them IT's WORST THAN WATERGATE... Elections is were "We The People" have lost our control and COUNTRY TOO!!!

July 25 2013 at 4:42 PM Report abuse +1 rate up rate down Reply
skinbus33

I have only 1 question..why is it legal for congress to benefit from insider trading while the rest of us risk arrest? Status quo.

July 25 2013 at 4:10 PM Report abuse +1 rate up rate down Reply
2 replies to skinbus33's comment
setanta54s_back

BINGO !

and of course NOT TOO MANY KNOW THIS-

July 26 2013 at 12:01 AM Report abuse -1 rate up rate down Reply
setanta54s_back

why is IT legal ?
BECAUSE THEY SAY SO.\\

this is exactly what orwell wrote back when
"all animals are equal BUT some are more equal than others"
animal farm

July 26 2013 at 12:12 AM Report abuse rate up rate down Reply
jimstein1942

Its a pervasive culture in the financial world to do whatever it takes to be profitable..Bernie Ebbers of World Com needed to prop up the value of his stock so he wouldn't get a margin call on his loans. Whats really interesting is that all the bad guys who took us down in 2008, not only did not get prosecuted they were not even fired....

July 25 2013 at 3:43 PM Report abuse +1 rate up rate down Reply
oranges8

Sounds like the Virginia governor candidate Mc Auliffe will be a beneficiary of this company it's his kinda shadiness.

July 25 2013 at 3:33 PM Report abuse +1 rate up rate down Reply
The Paterfamilia

Just a note about something that I ran across not long ago... The 14th Amendment not only Freed the Slaves but has since been turned around by the Supreme Court to infer that corporations enjoyed personhood under the Equal Protection Clause, now called \"Citizen United\"... What a Roller-Coaster ride for Humanity, from \"We The People\" to \"We The Proprietors\"...

When People break Laws, what Prosecutor defends a Criminal saying \"the interest of justice requires and we care about collateral consequences\"? Less a US FEDERAL Attorney, a Roll Model from the UPPER MOST of Legal Precedence who leads the way processing Victimless Drug Users, the Sick Medical Pot Smokers... Then OPENLY bends backwards to let MILLIONS FLOW out of workers Retirement Investments using Lame \"Business Friendly\" statements that expose \"Unequal Protection\" of Law... Capitalism is a POOR replacement for Democracy!!! Actually, this is FASCISM!!!

Allowing this stuff to go on for years and then measuring ones own opinion regarding the Impact of HUGE CORPORATIONS!!! Quoting a \"To Big Too Fail\" Mentality... This is the Corruption that allows inequality, collapse of Business Investment and more Corruption to flow into Elections... That\'s what the EQUAL PROTECTION OF THE LAW is for...

Repealing Citizens United can\'t even save America while we corrupt the Election Process with Supreme Court Justices that can\'t figure out simple applications of 200+ Year old Laws well known and written by simple Country Boys that ran Farms. No wonder the NSA and CIA Spy on \"We The People\"... They run these scams to fund their Covert Spy Networks and to prop up their Black Op\'s Military Contractors PLUS Rig ELECTIONS since the truth is they have hacked every Computer... Yes those same computers count the votes anyway...

July 25 2013 at 2:43 PM Report abuse +1 rate up rate down Reply
Doc

Who in Congress is going to throw the first stone, or any stone , for that matter....bunch of self-serving hypocrites....yes, you, McCain, you too Pelosi!

July 25 2013 at 2:13 PM Report abuse +1 rate up rate down Reply
1 reply to Doc's comment
setanta54s_back

this IS WHY
we're WAITING FOR THE REAL SHEISS to come outta the nsa leakeR--
there OBVIOUSLY IS "STUFF: on ALL OF THEM
used to blackmail them to VOTE A CERTAIN WAY.

get rid of them
line up constitutional CONSERVATIVES to replace them.

July 26 2013 at 12:10 AM Report abuse rate up rate down Reply
Edmond S. Abrain

If the justice department wants to prosicute "insider trading" it needs to look no further than members of the United States Congress and elected members and appointed department heads in the executive branch of govenment. I believe if we were able to determine what the individual net worth of this group was when they entered office or their appointed position compared to what it is now we would be astounded.

July 25 2013 at 1:46 PM Report abuse +2 rate up rate down Reply