(Editor’s note: On July 25, SAC Capital Advisors was accused of perpetrating what prosecutors called an unprecedented insider trading scheme. SAC was charged with four counts of securities fraud and one count of wire fraud in an indictment unsealed in Manhattan federal court. “SAC has never encouraged, promoted, or tolerated insider trading and takes its compliance and management obligations seriously,” said Jonathan Gasthalter, a spokesman for the hedge fund.)
With criminal charges expected to be filed at any moment against multibillion-dollar hedge fund firm SAC Capital Advisors, predictions have been flying that it will be a death sentence for SAC—and the end of its founder, Steven Cohen, long seen as one of the greatest traders of his generation.
In fact, many aspects of Cohen’s professional life may continue very much as they were, even in the face of criminal charges against his company. With a personal fortune of $9 billion, according to the Bloomberg Billionaires Index, Cohen could still trade with his own money, legal experts say. He could continue to climb into a black SUV and be driven every morning to 72 Cummings Point Road in Stamford, Conn., where the SAC parking lot may still resemble an exotic car dealership and the lobby an art museum. He could keep his trading floor chilly, as he does today, and fill it with analysts and portfolio managers wearing fleece zip-neck sweaters. He could drop into Davos in the winter and tour art fairs in the spring.
The implications of criminal charges against any company are ominous. If Cohen’s firm is indicted, “from a practical standpoint, nobody will be able to do business with him because of the risk,” says Thomas Sporkin, a partner at law firm BuckleySandler and former senior official in the Securities and Exchange Commission enforcement division. But in the case of SAC, much of the damage has already been done, and for Cohen, it could have been much worse. He has not been charged personally.
This moment arrives six years into a government investigation of illegal trading at SAC led by Preet Bharara, the U.S. Attorney in Manhattan for the Southern District of New York, the FBI, and the SEC, during which at least nine current or former SAC employees have been linked to illegal trading. The SEC reached a $616 million settlement with SAC in March over alleged illegal trades of two portfolio managers, and filed another action on July 19 seeking to bar Cohen from managing investor funds. A criminal case against the firm has the potential to extract further financial penalties, but at this point it’s not clear what else it accomplishes.
SAC has already seen most of its client money—about $5 billion—walk out the door, and its reputation has been tarnished. Cohen has lived with more negative publicity than most people could handle. Things have been so bad for so long that he floated the idea of turning the firm into a family office, Bloomberg reported in May. In many respects, the old SAC is gone. Through a spokesperson, Cohen declined to comment. He’s previously said he has done nothing wrong and vowed to fight any charges against him.
Discussions of a potential criminal case against SAC often refer to accounting firm Arthur Andersen, which was convicted in 2002 of obstructing the investigation of Enron and collapsed as a result of the case. (The conviction was overturned.) Investigators have also looked closely at another, possibly more relevant, case, according to a person familiar with the matter who could not speak publicly—the one against Tiger Asia Management, a hedge fund company based in New Jersey that was spun out of Julian Robertson’s hedge fund, Tiger Management.
In December 2012 the SEC charged Tiger Asia, its fund principal and portfolio manager, Sun Kook “Bill” Hwang, and the fund’s head trader, Raymond Y.H. Park, with insider trading. The SEC’s action was closely coordinated with the U.S. Attorney’s Office in New Jersey, which charged the hedge fund with wire fraud. Hwang pled guilty to the criminal charges on behalf of the company, and Tiger Asia was sentenced to one year of probation and ordered to pay a $16 million fine. According to a person familiar with the case, the corporate plea deal was a desirable way, from Hwang’s perspective, of resolving the criminal case without subjecting any individuals to possible charges or jail time. Separately, Hwang and his company agreed to pay $44 million to settle the SEC’s charges.
What happened to Hwang since then is instructive. As part of the SEC settlement he was disqualified from the securities industry for five years. While waiting for his probationary period to run out, Hwang spends his time trading his own money and has hired analysts to help him. He has to be especially careful not to do anything that might be construed as providing investment advice, because he does not want to run afoul of his agreement with the SEC. While Hwang avoided jail time, his passion in life had been investing and making money for his clients, according to the person familiar with the case, and that’s something he can’t do now.