SAC Capital Advisors LP, which is facing federal insider-trading charges and a money-laundering lawsuit, was granted court approval to continue operating until the cases are resolved.
U.S. District Judge Richard Sullivan in Manhattan, who’s presiding over the money-laundering case, yesterday signed an order to protect the Stamford, Connecticut-based fund’s legitimate operations from being impeded by the government while the case is pending.
The indictment of SAC, the New York hedge fund owned by Steven A. Cohen, and the related laundering case were announced July 25 by Manhattan U.S. Attorney Preet Bharara, who called SAC “a veritable magnet for market cheaters.” Bharara said SAC reaped hundreds of millions of dollars in illicit profits through separate insider-trading schemes by at least eight former SAC fund managers and analysts.
“By entering a restraining order, the court can preserve the status quo pending the jury’s verdict and the outcome of any proportionality hearing,” according to the order jointly submitted by prosecutors and SAC. “Here the government requests a protective order that imposes limited measures designed to preserve the availability of the defendant property for forfeiture.”
The approved plan requires that during both cases, SAC will maintain at least 85 percent of the “aggregate value” of assets owned by the firm’s “entity defendants” as of July 1, and in exchange, allows for the fund to continue its lawful operations. If the assets fall below the specified level in a given month, the fund is required to “replenish” the monies, according to yesterday’s order.
The plan covers about $6 billion of assets not overseen for clients or employees of SAC, according to a person with knowledge of the matter, who asked not to be identified because the information is private. That means the firm must maintain about $5 billion of assets. SAC managed about $14 billion earlier this year, including $9 billion for Cohen and employees.
The agreement provides for the U.S. to receive adequate information to ensure that the fund’s property is being maintained and that business documents are preserved for trial. It gives the judge jurisdiction over SAC’s property.
Jonathan Gasthalter, a spokesman for SAC at Sard Verbinnen & Co., declined to comment on yesterday’s filing.
While Cohen, 57, wasn’t charged in the indictment or sued, prosecutors said he “encouraged” SAC employees to obtain trading information from company insiders while ignoring indications that it was illegal. In the civil case, the U.S. alleged that SAC engaged in money laundering, “commingling the illegal profits from insider trading with other assets, using the profits to promote additional insider trading.”
If a jury concludes in a civil trial that SAC funds are subject to forfeiture because the firm laundered illegal insider trading proceeds, jurors also will have to determine whether there were “innocent owners,” according to the agreement.
The agreement defines an innocent owner as someone who “did not know of the conduct giving rise to forfeiture” or after learning about the conduct, “did all that reasonably could be expected under the circumstances.”
During a second phase of the trial before the judge, the innocent owners or any others who say they have claims to the business or funds will have to prove to the court why forfeiture of the entire sum sought by prosecutors is “grossly disproportionate” or “excessive,” according to the agreement.
Two from SAC charged with insider trading, former fund manager Mathew Martoma and Michael Steinberg, a fund manager at the firm’s Sigma Capital unit, are scheduled for separate trials in November.
Former SAC fund managers and analysts who have pleaded guilty include Noah Freeman, Donald Longueuil, Jon Horvath, Wesley Wang, Richard Choo-Beng Lee and Richard Lee.
Weeks before SAC was indicted, firm employees expected clients to say they would take back most of the $4 billion they hadn’t already marked for redemptions by early next year, people with knowledge of the situation said at the time. Clients said in the first quarter they would pull $1.68 billion.
The firm was once one of the most successful in the hedge-fund industry, with returns averaging 25 percent since 1992. Cohen has considered running SAC as a family office to oversees his fortune, a move that would probably require layoffs among his 1,000 employees.
The cases are U.S. v. SAC Capital Advisors LP, 13-cr-00541; U.S. v. SAC Capital Advisors LP 13-cv-05182, U.S. District Court, Southern District of New York (Manhattan).