SAC's Crimes Are 'Without Precedent': Bharara

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July 25 (Bloomberg) - Manhattan U.S. Attorney Preet Bharara holds a news conference to discuss the charges against SAC Capital. The $14 billion hedge fund, founded by Steven A. Cohen, was indicted by a U.S. grand jury for perpetrating an unprecedented insider trading scheme. (Source: Bloomberg)

Let's go to new york and the u.s. attorney called a news conference on the insider- trading charges filed against sac.

They employed the many people responsible for what can only be described as rampant insider trading within those funds.

Second, we have filed civil money-laundering charges against numerous sac funds seeking forfeiture of assets to address sac's led guilty and third, we unseal the guilty plea of yet another portfolio manager at sac, richard lee, who this past tuesday, pled guilty to committing insider trader offenses while an employee at sac.


lee brings the number of employees to 8 convicted or charged with insider trading for the benefit of sac.

The indictment to date makes clear is that when so many people from a single hedge fund have engaged in insider trading, it is not a coincidence.

It is, instead, the predictable product of substantial and pervasive institutional failure.

As alleged, sac trapped inside information on a scale without any known precedent in the history of hedge funds.

As described in the indictment, the scope of illegal trading was how deep and it was wide.

It spent more than a decade in time, and bought the securities of at least 20 public companies, extended across multiple sectors of the economy, had benefited sac to the tune of at least hundreds of millions of dollars.

Today's indictment is not just a narrative of names and numbers.

It is more broadly an account of a firm zer tallero as for low returns but seemingly tremendous tolerance for questionable conduct.

Sac became, over time, a veritable magnate for market teachers.

The sac companies -- for market cheaters that almost never walked the walk.

That is why today the institution itself rather than just individuals stands charged with wire and securities fraud.

Before i review some of the charges in detail, let me introduce our partners in this investigation and prosecution.

I'm joined by our partner, the fbi . i want to thank george and april and they're dedicated team.

They help not just on this case is that all the cases that led us to this point.

. i want to acknowledge the career prosecutors from my own office.

The asa handling the prosecution.

I want to acknowledge the hard work done by the chief of the criminal division.

Let me take a minute or two to talk about the particulars of the charges and guilty plea.

First, the guilty plea we announced today is by one of sac's pour polio managers, richard lee.

He co-manage a $1.2 billion portfolio focused on special situations like mergers and acquisitions.

While still a portfolio manager at sac, he obtained inside information with respect to various securities including yahoo!

And 3-com corp.. the particular story of richard lee's time at sec is emblematic of the broader culture problem at the fund.

As alleged, the sac companies hired richard lee despite a reputation for insider trading.

He was hired over objections from sac legal department despite specific warnings during the application process that he had improperly been part of an insider-trading group at his prior employer.

Predictably, from virtually the inception of his employment at sac in 2009, richard lee began to trade on inside information.

This is conduct that he pled guilty to two days ago.

He is continuing to cooperate with the government's investigation.

Second, as i mentioned, this morning, we filed a civil forfeiture action and civil court.

It alleges that the sec companies engaged in money laundering by combing the profits from illegal insider trading with other assets to use the profits to promote additional insider trading and transferring the profits.

Our action today does not see to freeze any sac assets and we are always mindful to minimize risks to third-party investors.

We have not restrained any money and we will discuss with the company a reasonable method going forward to protect all parties'legitimate interests.

The indictment charges the four sac management companies with insider trading.

If you look at the simple chart to my right -- you see the four-and companies were these.

As i mentioned, the account now is up to eight individuals as either portfolio managers or research analysts while at one of these management companies and they have either been charged or pled guilty.

Six have been convicted and eight are -- and two are awaiting trial.

Richard lee is the most recent portfolio manager at.

The is not even the first richard lee cause we have one over here who has pled guilty with ongoing insider trading at s ac.

Why are the sac entities being charged?

In addition to individuals, some times the organizations that employed them are criminally culpable and merit prosecution, too.

The sac companies are being held accountable for the criminal acts of some money of their employees because the misconduct was pervasive.

Those employees were acting for the direct financial benefit of the firm and because the company did not effectively police its own people.

As alleged, the s ac companies went out of their way to find employees with personal networks of company insiders but did not correspondingly consider whether the employees were using such contacts to obtain inside information despite red flags.

John horvath was an analyst in the tech sector.

The hiring report on him tated that he generated investment ideas by "mining is industry contact network."last september, he pled guilty to mining illegal information from his network.

More generally, the failures of sac to police itself are legion as alleged in the indictment.

Red flags and warning signs were repeatedly ignored until late 2009. the compliance department rarely reviewed electronic communication containing suspicious terms and failed to detect the insider-trading by any of the eight sac employees charged to date.

In its entire history, sac identified possible insider- trading by any of its employees just once.

On that occasion, sac not only failed to report the matter to law enforcement are regulators that those individuals were not terminated from employment.

So far as we can tell, sac never reported suspicious trading to any regulator or criminal authority ever.

The company reaps what it sows.

Sac seeded itself with corrupt traders empowered to engage in criminal acts by a culture that looked the other way despite red flags all round.

Sac deliberately encouraged the no-holds-barred pursuit of an edge that literally carried it over the edge into corporate criminality.

Companies like individuals need to be held to account and need to be deterred from becoming dens of corruption.

To all those who run companies and value their enterprises, but pay attention only to the money their employees make and not how they make it, today's indictment hopefully gets your attention.

It is my honor to call to the podium, the head of the fbi in new york.

Thank you.

This text has been automatically generated. It may not be 100% accurate.


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