The Fraud Examiner
SAC Capital Group Faces Insider Trading Charges
By Scott Butler
Leadership at SAC Capital Group (SAC) is accused of creating a culture that encouraged the use of non-public, material information in the pursuit of high returns. And those returns have indeed been high — nearly 30 percent over the last 20 years, some of the best in the hedge fund industry. SAC is headed by its founder, Steven A. Cohen, legendary Wall Street trader, 117th richest man in the world and largest investor in the firm with more than $8 billion at stake.
On July 25, 2013, Preet Bharara, U.S. Attorney for the Southern District of New York, indicted the group of companies that compose SAC Capital Advisors (SAC Capital Advisors, LP; SAC Capital Advisors, LLC; CR Intrinsic Investors, LLC; and Sigma Capital Management, LLC) on one count of wire fraud and four counts of securities fraud, calling the $14 billion hedge fund a “veritable magnet for market cheaters.” In addition to the criminal indictment, the government filed a civil forfeiture action in Manhattan federal court against SAC. It alleges that SAC “engaged in money laundering by commingling the illegal profits from insider trading with other assets, using the profits to promote additional insider trading, and transferring the profits with the assistance of financial institutions.” If the indictments are successful, SAC could be forced to shut its doors.
On July 19, 2013, the Securities and Exchange Commission (SEC) filed a civil complaint against Cohen. It alleged that Cohen “failed reasonably to supervise two of his senior employees [Mathew Martoma and Michael Steinberg] who engaged in insider trading under his watch.” The complaint seeks to recover more than $275 million in earned profits and avoided losses resulting from suspect trades in the stocks Elan, Wyeth and Dell.
The two portfolio managers implicated in the complaint have also been charged with criminal insider trading and have pleaded not guilty. In mid-March 2013, SAC paid a fine of more than $600 million, the largest in SEC history, to settle insider trading charges on only two trades without an admission of guilt.
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