The money-laundering complaint U.S. Attorney Preet Bharara filed against SAC Capital Advisors LP last week raised the prospect that all of the hedge fund’s $14 billion in assets may be subject to forfeiture.

“The government couldn’t put Steve in jail,” said Michael Bachner, a defense attorney and former New York prosecutor. “But they decided to give his money the death penalty.”

Bharara seeks forfeiture of “all right, title and interest” in all of SAC’s assets, should he prove his money-laundering case. Rulings interpreting the statute, however, suggest a less drastic outcome is possible for the Stamford, Connecticut-based hedge fund and its founder Steven Cohen.

Bharara wouldn’t say exactly how much he wanted to recover when he announced the lawsuit and SAC’s parallel indictment for insider trading. The law underlying the civil case states that any property involved in money-laundering activities, or traceable to them, can be forfeited.

Judges have approved forfeiture of illegal profits from a crime plus money derived from those profits, including appropriate interest, according to lawyers who have dealt with the money-laundering law. Bharara said that criminal conduct at fund had resulted in “hundreds of millions of dollars of illegal profits.”

Commingled Funds

If those illegal funds are commingled with clean money, such as a hedge fund’s main account, there is some precedent for getting the combined amount. A judge could rule there are sufficient links between the two types of funds, and that the amount involved is appropriate given the nature of the offense.

To get access to commingled funds, the government has to show it traced profits from SAC’s alleged insider trading activities to other funds within the firm, said Samuel Buell, a former federal prosecutor who teaches at Duke University School of Law.

“But the government doesn’t get to take everything just because some of the funds are tainted,” Buell said.

Under the theory of commingling, profits from an insider trading scheme that are ploughed into a hedge fund’s general account could expose all of the hedge funds money to a claim of forfeiture if such a transfer was shown to be money laundering. At the same time, the Excessive Fines Clause of the U.S. Constitution’s Eighth Amendment has led some judges to stop prosecutors from punishing a defendant disproportionately.