SAC Capital to Pay $1.8 Billion, the Largest Insider Trading Fine Ever

Steven Cohen, chairman and chief executive officer of SAC Capital Advisors, in Davos, Switzerland, in January 2012 Photograph by Simon Dawson/Bloomberg

According to the terms of a settlement agreement announced today, SAC Capital will pay $1.8 billion to resolve the criminal indictment brought against the firm for insider trading—the largest fine for insider trading in U.S. history. The future of Steven Cohen, the firm’s founder and one of the 150 richest men in the world, has not been so clearly resolved.

Preet Bharara, the U.S. Attorney for the Southern District of New York, announced that, under the proposed settlement, SAC will pay $900 million in forfeiture and a $900 million fine. The firm will receive credit for a $616 million penalty it agreed to pay the Securities and Exchange Commission in March over related insider trading charges, which brings the net total today to just under $1.2 billion. Cohen, as the owner of the firm, will pay for all of it out of his own pocket.

All four of the SAC funds that were named in July—SAC Capital Advisors LP, SAC Capital Advisors LLC, CR Intrinsic Investors, and Sigma Capital Management—are expected to plead guilty to securities fraud charges. However, the actual plea, in which Cohen or someone else would appear in court on behalf of SAC to answer to the charges, is not expected today. SAC will also end its investment advisory business as soon as it can do so in an orderly manner.

Still unresolved is the administrative proceeding filed against Cohen by the SEC on July 19. Unlike the criminal case, the SEC’s action targets Cohen personally rather than his company, so in some respects it may prove more threatening. The SEC is seeking to bar Cohen permanently from the securities industry and has indicated to him that it will accept nothing less. The two sides have not been negotiating at all as the talks with the criminal authorities have played out over recent weeks.

In August, a judge put Cohen’s future on hold until the SAC criminal case and the criminal trials of former and current firm portfolio managers Mathew Martoma and Michael Steinberg are over. Because the Martoma trial is currently scheduled for January, that means Cohen has about three more months to work things out with the SEC.

As for Cohen himself, he is busy preparing for a future at a smaller investment firm that will manage only his own fortune, which is estimated to be $9 billion. (If the SEC bans Cohen from the securities industry, it will not impact his ability to trade with his own money.)

The criminal settlement against Cohen’s firm also implies that the door is still open for further prosecution of Cohen and others implicated in the case. Bharara’s letter outlining the settlement contains the rather ominous line: “The agreement today provides no immunity from prosecution for any individual.” That may be little more than saber-rattling at this point: While the government has developed further leads in its investigation of his trading activities, nothing so far suggests that Cohen will be facing jail any time soon.

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