SAC Capital Advisors LP will plead guilty to securities fraud as soon as today, the biggest hedge-fund firm to resolve charges in the U.S. government’s six-year crackdown on insider trading, according to a person familiar with the matter.
SAC, founded by Steven A. Cohen, 57, has been told it must pay a fine of $1.8 billion as part of the deal, people familiar with the matter have said. U.S. Attorney Preet Bharara has set a press conference in New York at 1 p.m. to discuss a “proposed resolution” of the matter as well as a civil forfeiture case.
The company, indicted earlier this year, was accused of operating a conspiracy stretching back to 1999, reaping hundreds of millions of dollars in illicit profit. Cohen wasn’t charged and the Stamford, Connecticut-based firm had denied any wrongdoing. Cohen still faces an administrative action filed by the Securities and Exchange Commission for his alleged failure to supervise the hedge fund’s activities.
The plea deal won’t be the end of the U.S. investigation of SAC or Cohen, who has been the target of the multi-year probe. Insider trading trials in the next three months of two SAC managers may shed more light on its internal workings, and prosecutors continue to probe trading by SAC employees in Gymboree Corp., a children’s apparel maker, a person familiar with the matter said.
“It’s far easier for SAC Capital as a corporate entity to plead guilty and settle with the government because it doesn’t have to worry about being incarcerated,” Anthony Sabino, a professor of law at St. John’s University in New York, said in an interview. “The government has amassed tons of evidence against the fund which can’t be helpful to the others. The pressure’s on for one of them to plead guilty.”
The $1.8 billion fine amounts to about $1.2 billion that would be paid as a result of the criminal probe by Bharara and includes the more than $600 million that SAC had already agreed to pay the SEC to settle a related suit.
Jim Margolin, a spokesman for Bharara, declined to comment. Jonathan Gasthalter, a spokesman for SAC and Cohen, didn’t reply to an e-mail seeking comment.
Michael Steinberg, a money manager at SAC, is scheduled to go on trial later this month, accused of trading on inside tips on Dell Inc. and Nvidia Corp. The scheme generated $1.4 million in illicit profits, prosecutors said.
Prosecutors also charged Mathew Martoma, a former SAC money manager, with using illegal tips about an Alzheimer’s drug trial to help the firm make profits or avoid losses totaling $276 million by trading Elan Corp. and Wyeth LLC shares. Martoma pleaded not guilty and is scheduled to go to trial in January. The U.S. called the case the largest insider-trading scheme in history.
“There’s going to be the specter of criminal prosecution against” Cohen, Sabino said, “and many sleepless nights for one or all of them with the pressure’s on for one of them to plead guilty.”
Elan shareholders who sued SAC and Cohen for insider trading asked the judge presiding over the hedge fund’s criminal case to reject any accord SAC has reached with prosecutors unless it pleads guilty to the conduct alleged in their case.
The proposed SAC plea agreement, reached in the past week, won’t include an admission of promoting insider trading within the firm, CNBC reported, citing people familiar with the deal.
The case is: U.S. v. SAC Capital Advisors LP, 13-CR-00541. U.S. District Court for the Southern District of New York (Manhattan).