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Goldman Sachs to BofA Are Said to Trade With SAC After Plea Deal

SAC Capital Offices
The offices of SAC Capital Advisors LP stand in Stamford, Connecticut. Photographer: Chris Ware/Bloomberg

Nov. 5 (Bloomberg) -- Goldman Sachs Group Inc., JPMorgan Chase & Co. and Bank of America Corp. are among Wall Street firms still catering to SAC Capital Advisors LP after the hedge fund agreed to plead guilty to insider trading charges.

The banks, which also include Morgan Stanley, continue to provide trading and prime-brokerage services to SAC, said people briefed on the matter, who requested anonymity when discussing specific clients. The hedge-fund firm, run by billionaire Steven A. Cohen, agreed yesterday to pay $1.8 billion -- a record penalty for insider trading -- to settle allegations it illicitly reaped hundreds of millions of dollars since 1999.

“The presumption is that if JPMorgan should resign the business, then someone else would do it,” said Roy Smith, a finance professor at New York University’s Stern School of Business and a former Goldman Sachs partner. “These people all say we serve our clients, so if our clients get into trouble, we serve them as long as we can.”

Banks are weighing the potential damage to their reputations and finances if they continue dealing with Stamford, Connecticut-based SAC, one of Wall Street’s largest trading clients. While SAC agreed to stop managing money for outsiders, it may continue investing Cohen’s personal fortune of about $9 billion.

Choosing Carefully

JPMorgan, the largest U.S. lender, said last month it chose to reduce risk by stepping away from certain clients, including 500 foreign banks, and individuals who may be linked to money-laundering. The company, led by Chief Executive Officer Jamie Dimon, 57, is negotiating a $13 billion settlement to end investigations into its mortgage bond-sales.

SAC Capital was granted court approval in August to continue operating until the cases were resolved. Yesterday’s deal is contingent upon the approval of U.S. District Judge Laura Taylor Swain, who’s presiding over the criminal case, and U.S. District Judge Richard Sullivan, who’s overseeing the civil money-laundering case.

Goldman Sachs CEO Lloyd C. Blankfein told CNBC in September that regulators encouraged banks to maintain business relations with SAC because withdrawing that liquidity would “vaporize a firm.” Goldman Sachs gets more than half its revenue from trading.

‘Existential Decision’

“They’ve been indicted,” Blankfein, 59, said in the Sept. 18 interview. “They haven’t been convicted. We are a big liquidity provider, we’re a major prime broker. That would be quite an existential decision for them if all the liquidity providers withdrew liquidity on the basis of an indictment which they’re contesting.”

Spokesmen for Goldman Sachs, JPMorgan and Morgan Stanley, which are all based in New York, as well as Charlotte, North Carolina-based Bank of America declined to comment.

Cohen’s firm takes “responsibility for the handful of men who pleaded guilty and whose conduct gave rise to SAC’s liability,” Jonathan Gasthalter, a spokesman for SAC, said in an e-mailed statement. “The tiny fraction of wrongdoers does not represent the 3,000 honest men and women who have worked at the firm during the past 21 years.”

Gasthalter said SAC has never “encouraged, promoted or tolerated insider trading.”

‘Zero Tolerance’

In July, Manhattan U.S. Attorney Preet Bharara called SAC Capital “a veritable magnet for market cheaters.” The hedge-fund firm had “zero tolerance for low returns but seemingly tremendous tolerance for questionable conduct,” he said.

Cohen, 57, who wasn’t charged in the indictment, faces an administrative action filed by the U.S. Securities and Exchange Commission for allegedly failing to supervise the firm’s activities.

Prosecutors said he encouraged SAC employees to obtain trading information from corporate insiders while ignoring indications that it was illegal.

Yesterday’s agreement provides “no immunity from prosecution for any individual and does not restrict the government from charging any individual for any criminal offense,” the government wrote in the court filing.

A representative of SAC will plead guilty on its behalf in Manhattan federal court as early as Nov. 8, said a person familiar with the matter.

The criminal case is U.S. v. SAC Capital Advisors LP, 13-CR-00541, U.S. District Court for the Southern District of New York (Manhattan). The civil case is U.S. v. SAC Capital Advisors LP, 1:13-cv-5182, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net; Michael J. Moore in New York at mmoore55@bloomberg.net

To contact the editor responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net

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