SAC Capital Management Companies Plead Guilty To Insider Trading Charges In Manhattan Federal Court
SAC Management Companies Plead Guilty to All Counts in Criminal Indictment, Agree to Pay $1.184 Billion, and Terminate SAC Capital’s Investment Advisory Business
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that S.A.C. CAPITAL ADVISORS, L.P. (“SAC Capital LP”), S.A.C. CAPITAL ADVISORS, LLC (“SAC Capital LLC”), CR INTRINSIC INVESTORS, LLC (“CR Intrinsic”), and SIGMA CAPITAL MANAGEMENT, LLC (“Sigma Capital”), collectively (the “SAC Companies”) that are responsible for the management of a group of affiliated hedge funds, collectively (the “SAC Hedge Fund” or “SAC”), pled guilty to each count in which they are charged in an indictment (the “Indictment”) unsealed in July of this year. The Indictment charges the SAC Companies with securities fraud and wire fraud in connection with a large-scale insider trading scheme. The SAC Companies pled guilty today before U.S. District Judge Laura T. Swain, pursuant to a plea agreement. Sentencing is scheduled for March 14, 2014, before Judge Swain, who reserved on the decision of whether to accept the pleas.
Manhattan U.S. Attorney Preet Bharara said: “Subject to the Court’s acceptance, today four SAC Capital companies pled guilty to serious federal crimes that undermined the integrity of our securities markets. Financial institutions should know that they are not automatically immune from prosecution, and we will hold companies, as well as individuals, accountable wherever appropriate.”
As alleged in the Indictment, from 1999 through at least 2010, numerous employees of the SAC Companies obtained and traded on material, non-public information that they were not permitted to have (“Inside Information”), or recommended trades based on such information to SAC Portfolio Managers (“SAC PMs”) or the SAC Owner. Specifically, the Indictment charges the SAC Companies with insider trading offenses committed by numerous employees, occurring over the span of more than a decade, and involving the securities of more than 20 publicly-traded companies across multiple sectors of the economy. As charged in the Indictment, the systematic insider trading engaged in by SAC PMs and Research Analysts was the predictable and foreseeable result of multiple institutional failures. The failures alleged included hiring practices heavily focused on recruiting employees with networks of public company insiders, the failure of SAC management to question employees about trades that appeared to be based on Inside Information, and ineffective compliance measures that failed to prevent or detect such trading, particularly prior to late 2009.
The plea agreement in this case was one of two component parts of an overall Agreement (the “Agreement”) reached by the parties and announced earlier this week. The Agreement imposes an additional $1.184 billion financial penalty on the SAC Companies, on top of the $616 million the SAC Companies have already agreed to pay to the U.S. Securities & Exchange Commission (“SEC”). The financial penalty – the largest insider trading penalty in history – is split between a fine in the criminal case (the “Criminal Case”), and a forfeiture judgment in a civil money laundering and forfeiture action (the “Forfeiture Action”) filed by the Government simultaneously with the criminal charges. It also provides that the SAC Companies and their affiliates will no longer accept outside investor funds and will shut down operations as an investment adviser.
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The Agreement between the Government and the SAC Companies to plead guilty to all of the charges in the Indictment in which they are charged and resolve the Forfeiture Action was submitted to the Courts subject to judicial review and approval. Judge Swain received the pleas in the Criminal Case, United States v. S.A.C. Capital Advisors, L.P., et al., 13 Cr 541 (LTS), earlier today. U.S. District Judge Richard J. Sullivan, who is presiding over the Forfeiture Action, captioned United States v. S.A.C. Capital Advisors, L.P., et al., 13 Civ. 5182 (RJS), approved on Wednesday, November 6, 2013, the stipulation and proposed order to resolve the civil money laundering and forfeiture claims in the Forfeiture Action.
The remaining terms of the Agreement provide for the following:
- The total financial penalty is $1.8 billion, consisting of a $900 million fine in the Criminal Case and a $900 million judgment in the Forfeiture Action. Because the SAC Companies have already agreed to pay $616 million to the SEC to resolve related civil insider trading charges, that amount will be credited against the $900 million judgment in the Forfeiture Action, and therefore, the additional payment required under this Agreement will be approximately $1.184 billion. The SAC Companies have further agreed that neither they nor any other person or entity paying any portion of the financial penalty shall claim any tax deduction or credit for any money paid in resolving the Criminal Case and the Forfeiture Action.
- The SAC Companies will no longer accept third party investor funds and will terminate operations as an investment adviser.
- The SAC Companies will each be sentenced to a five-year term of probation – the maximum allowed by law – with a provision to end probation earlier if the SAC Companies cease operating entirely. The terms of probation will require, among other conditions, that the SAC Companies employ appropriate compliance measures to identify and prevent insider trading. Additionally, the insider trading compliance measures of the SAC Companies and any related entities trading securities will be reviewed by an independent compliance expert who will direct the SAC Companies to correct identified deficiencies.
The Agreement resolves the criminal charges against the SAC Companies but does not provide any individual with immunity from prosecution. Under the terms of the Agreement, the Government is not prevented from charging any individual with insider trading offenses and seeking the maximum prison term authorized by law for such offenses.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Arlo Devlin-Brown, Antonia M. Apps and John T. Zach are in charge of the prosecution, and Assistant U.S. Attorneys Sharon Cohen Levin, Chief of the Asset Forfeiture Unit, Micah Smith and Christine Magdo are responsible for the forfeiture aspects of the case.
The pleas announced today relate only to the pending charges against the SAC Companies and relate only to the guilt of the SAC Companies. The pleas do not include any admissions pertaining to individual defendants. All criminal defendants are presumed innocent unless and until proven guilty.