SAC Initiates Settlement Talks With the Government

Steven Cohen, founder and CEO of SAC Capital Advisors LP, in 2011 Photograph by Ronda Churchill/Bloomberg

Lawyers for hedge fund SAC Capital Advisors last week reached out to prosecutors in New York to say that SAC founder Steven Cohen is interested in settling the civil and criminal cases against him and his company, according to people familiar with the matter. The settlement of the criminal case against the firm would likely involve a substantial fine, these people said; the current number being discussed is in the neighborhood of $1 billion. One of the factors being considered in determining financial penalties is the desire to inflict monetary pain on Cohen personally without damaging other parties, such as his investors, one of the people said.

After a multiyear investigation conducted by the U.S. Attorney’s Office, the FBI, and the Securities and Exchange Commission, a grand jury indicted SAC Capital on July 25, accusing the firm of fostering a culture where employees engaged in rampant securities fraud. The indictment said traders at SAC engaged in insider trading that was “substantial, pervasive, and on a scale without known precedent in the hedge fund industry.” Manhattan U.S. Attorney Preet Bharara described SAC as “a magnet for market cheaters.” Cohen has denied the charges and maintains that he and his firm behaved appropriately. Through a spokesperson he declined to comment.

The SEC had filed a civil administrative proceeding against Cohen the week before, accusing Cohen of failing to supervise two senior SAC employees who engaged in insider trading. One of the potential remedies in that case, which has been put on hold pending the criminal proceedings, is a bar from the securities industry. The SEC has previously reached a settlement with SAC for more than $600 million over some of the trades.

Two of the traders at the heart of the cases are scheduled to go on trial for insider trading in November. Current SAC portfolio manager Michael Steinberg’s trial is slated to begin on Nov. 18, while former portfolio manager Mathew Martoma’s trial is scheduled for Nov. 4. Martoma’s defense lawyer, Richard Strassberg of Goodwin Procter, is requesting that Martoma’s trial be postponed to accommodate another trial he has under way. That request is expected to be granted, according to the people familiar with the matter.

At the end of it all, Cohen will still have many billions to play with, although SAC Capital in its current incarnation will no longer exist.

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