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U.S. Indicts SAC Capital with Criminal Charges

July 25, 2013 | About:
Monica Wolfe

Monica Wolfe

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A mere week after Guru Steven Cohen of SAC Capital was hit with a civil suit from the SEC for failure to supervise, a grand jury from Manhattan has now filed a five-count criminal indictment against the SAC Capital Advisors. The indictment includes one count of wire fraud and four counts of securities fraud.

This indictment does not directly charge Steven Cohen, but instead his Stamford, Connecticut-based firm as a whole. The 41-page filing charges SAC with:

Criminal responsibility for insider trading offenses committed by numerous employees and made possible by institutional practices that encouraged the widespread solicitation and use of illegal inside information. Unlawful conduct by individual employees and an institutional indifference to that unlawful conduct resulted in insider trading that was substantial, pervasive and on a scale without known precedent in the hedge fund industry.

The indictment goes on to charge SAC with permitting a “systematic” insider trading scheme to take place between 1999 and 2010. The SEC appears to be trying to prove that SAC Capital’s success over the past decade has been as a result of trading on illegal insider trading.

The top federal prosecutor in the case, Preet Bharara, spoke this morning about the indictment and what it means for SAC Capital. In this statement, Bharara said, “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 a pervasive institutional failure.”

You can watch the full video release of the U.S. Attorney on SAC Capital indictment here.

The SEC has been following SAC Capital for six years and has charged at least eight current or former SAC employees with illegal insider trading charges. But SAC is simply the largest case; the government has now charged over 80 individuals and firms with insider trading since 2009. Seventy-three of these cases resulted in a conviction.

The president of Heritage Capital, Paul Schatz, said in an interview on Breakout that “anybody who breaks securities law deserves to be punished,” but he continues by say that it “almost seems like the government is going so far out of their way to persecute one firm. There are hundreds and now thousands of hedge funds; it’s hard to believe that, if this is actually true, that there is only one firm that is doing this.”

There is still no information directly linking Cohen to illicit trades, but the strike against his firm could hurt him financially all the same as he owns 100% of SAC Capital which he founded 21 years ago.

In the most recent count, the fund’s investors have pulled about $5 billion of $6 billion in outside money from the firm. Two larger investors include Blackstone Group and Citigroup. Despite the mass investor withdrawals, the fund still maintains several billion dollars under management as the New York Times reports, “Of the $15 billion that SAC managed at the beginning of the year, about $8 billion is Mr. Cohen’s.” The article goes on to suggest that Mr. Cohen should shut down SAC and open up a “family office” that manages his personal money, but that the SEC could seek to have him barred from the financial services industry for life, which would prohibit him from trading stocks entirely.

An SAC spokesman said in a statement that despite the fund’s current troubles, the firm “will continue to operate as we work through these matters.”

You can view Steven Cohen’s current portfolio here.

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