SAC Capital Advisors has agreed to plead guilty to insider trading violations and pay a record $1.2 billion penalty, becoming the first large Wall Street firm in a generation to confess to criminal conduct. The move caps a decade-long investigation that turned a once mighty hedge fund into a symbol of financial wrongdoing.
The guilty plea and fine paid by SAC, which is owned by the billionaire investor Steven A. Cohen, are part of a broader plea deal that federal prosecutors in Manhattan announced Monday. It will also require SAC to terminate its business of managing money for outside investors, though the firm will probably continue to manage Cohen’s fortune.
SAC’s case could inspire other aggressive actions against Wall Street, as the Justice Department’s uneven crackdown on financial fraud has gained momentum in recent months. Coming just days before JPMorgan Chase is expected to finalize a $13 billion settlement with the government over the bank’s questionable mortgage practices, the SAC case could stem concerns that financial firms are too big to charge.
In a letter to the court, Preet Bharara, the U.S. attorney in Manhattan, called the penalty “steep but fair” and “commensurate with the breadth and duration of the charged criminal conduct.” The letter explained that SAC agreed to plead guilty to each of the five counts in the indictment.
Cohen, whose enormous compensation and conspicuous consumption have made him an emblem of the new Gilded Age, has not been charged criminally. Still, the plea deal is a devastating blow to Cohen, as the firm that bears his initials will acknowledge that it was a corrupt organization. SAC’s admission that several of its employees traded stocks based on secret information also colors Cohen’s astounding investment track record. Since 1992, the fund posted average annual returns of nearly 30 percent.
The $1.2 billion penalty adds to the $616 million in fines that SAC agreed to pay to regulators earlier this year. Cohen, who owns 100 percent of the firm, will pay those penalties.