SAC Capital Advisors LP’s plea agreement to pay a $900 million penalty should be accepted, U.S. prosecutors told a judge as they seek the biggest criminal fine ever imposed for insider trading following a six-year probe of the firm.
Manhattan U.S. Attorney Preet Bharara’s office yesterday asked U.S. District Judge Laura Taylor Swain to approve the agreement as part of a record $1.8 billion settlement that also calls for the hedge fund to close its investment advisory business. Swain is set to decide April 10 whether she will accept the guilty plea and sentence the Stamford, Connecticut-based firm founded by billionaire Steven A. Cohen.
SAC pleaded guilty in November to securities fraud and wire fraud for allowing eight employees to engage in illicit trading dating back to 1999. Swain said then that she needed time to review the case before ruling on the plea.
“The financial penalty being sought is steep but fair: it represents an appropriate punishment in light of the breadth and duration of the criminal conduct at SAC Capital, and deters similar misconduct at other institutions,” assistant U.S. attorneys Antonia Apps, Arlo Devlin-Brown and John Zach said in their memo to Swain. “That criminal conduct included (but is not limited to) the actions of eight SAC employees who have either pled guilty or been found guilty at trial of engaging insider trading.”
The U.S. yesterday separately filed its response to a former SAC fund manager’s bid to overturn his conviction, saying that Mathew Martoma doesn’t deserve a new trial for the most lucrative insider-trading scheme ever because the evidence against him was overwhelming.
Also yesterday, SAC proposed retaining Bart Schwartz, the chairman and chief executive officer of Guidepost Solutions LLC, as an independent compliance consultant to SAC, according to a court filing. The U.S. approved the choice of Schwartz, who is a former chief of the criminal division of the U.S. Attorney’s Office in Manhattan.
SAC in November won U.S. District Judge Richard Sullivan’s approval of a $900 million settlement of a civil money-laundering case by the government that includes a $616 million fine that the fund agreed to pay to the U.S. Securities and Exchange commission to settle related civil forfeiture claims.
Prosecutors said yesterday the combined criminal and civil penalties totaling $1.8 billion are warranted for a firm whose institutional practices “encouraged SAC employees aggressively to pursue an informational ‘edge’ while failing to put in place safeguards to ensure that such an edge was lawfully obtained, resulting in institutional indifference to illegal insider trading.”
SAC Capital has also urged Swain to accept the plea and the agreed-upon fine, saying the firm is “deeply remorseful” for the illegal acts of its employees, according to a filing last week.
Bharara called the hedge fund “a veritable magnet for market cheaters” when the indictment was filed in July and said the company had “zero tolerance for low returns but seemingly tremendous tolerance for questionable conduct.”
While Cohen wasn’t charged, prosecutors said he “encouraged” SAC employees to obtain trading information from company insiders while ignoring indications that it was illegal.
Cohen has denied wrongdoing.
Under the settlement, SAC will become a firm managing only Cohen’s personal wealth. The firm, which is changing its name to Point72 Asset Management, said in February it shrunk its headcount to 850 people from 1,000.
Martoma, found guilty Feb. 6 by a federal court jury in Manhattan, is seeking to overturn his securities fraud convictions on grounds the government didn’t prove he traded on nonpublic information or had the required criminal intent. He also questioned the credibility of a key government witness and said media accounts of his expulsion from Harvard Law School may have biased the jury.
Prosecutors said Martoma’s convictions should stand based on the overwhelming evidence presented at trial that he had inside information, particularly his receipt of the final efficacy results of a trial for an Alzheimer’s disease drug from Sidney Gilman, a former University of Michigan neurologist who was the government’s star witness, according to a filing with U.S. District Judge Paul Gardephe, who presided over the trial.
Martoma’s claims that the jury was biased by his Harvard dismissal is contradicted by the trial record which showed that all jurors said they heeded warnings not to read media coverage of the trial, according to the government. Those warnings came before the information about Harvard appeared in the press, prosecutors said. There’s no reason for the judge to assume jurors lied about their promise, Devlin-Brown said in the filing.
Jurors found that Martoma, 39, used secret tips on clinical trials of the Alzheimer’s disease drug to trade Wyeth and Elan Corp. shares. In doing so, he reaped a $275 million benefit for the fund. Martoma chose to risk a trial after rejecting U.S. offers of a deal for cooperation. He faces as long as 20 years in prison on the most serious counts.
The criminal case is U.S. v. SAC Capital Advisors LP, 13-cr-00541, U.S. District Court, 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). The Martoma case is U.S. v. Martoma, 12-cr-00973, U.S. District Court, Southern District of New York (Manhattan).