SAC Capital Advisors LP, the $14 billion hedge fund founded by Steven A. Cohen, was indicted by a U.S. grand jury for perpetrating an unprecedented insider trading scheme that was revealed as part of the government’s six-year crackdown on criminal malfeasance on Wall Street.
The insider trading case against the Stamford, Connecticut- based firm is the most significant to be brought by the U.S. since former Goldman Sachs Group Inc. director Rajat Gupta was charged in October 2011. Gupta, convicted in New York federal court last year, was sentenced to two years in prison.
SAC was indicted on four counts of securities fraud and one count of wire fraud in an indictment unsealed in Manhattan federal court. The insider trading scheme involved more than 20 companies and went back as far as 1999, the U.S. said. SAC was founded in 1992.
SAC’s insider trading, the U.S. said, was “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.”
Cohen, 57, wasn’t charged in the indictment.
Seeking ‘Edge’
SAC employed practices that encouraged its portfolio managers and research analysts “to pursue industry contact networks to obtain an information ‘edge’ unavailable to other investors, without effective corresponding controls to prevent that ‘edge’ from consisting of inside information,” the U.S. said.
This isn’t the first time Manhattan U.S. Attorney Preet Bharara has sought charges against a business. In February 2012, his office charged Wegelin & Co., Switzerland’s oldest private bank, for helping U.S. taxpayers hide assets from the Internal Revenue Service. Wegelin pleaded guilty and was ordered to pay almost $58 million. Today’s indictment, and a related Securities and Exchange Commission administrative action, may put SAC out of business.
The hedge fund must forfeit “all property, real and personal, which constitutes or is derived from proceeds traceable to the commission of those offenses,” the government said in a parallel civil action.
Cohen is worth $9.5 billion, according to the Bloomberg Billionaires Index. He is also one of the world’s biggest art collectors, with works by Van Gogh, Manet, de Kooning, Picasso, Cezanne, Warhol, Johns and Richter.