“Federal prosecutors in Manhattan on Thursday unsealed an indictment against SAC Capital Advisors, alleging the $14 billion hedge fund firm owned by billionaire trader Steven Cohen committed wire and securities fraud as part of an insider trading scheme that went on for over a decade.
Preet Bharara, the U.S. Attorney in Manhattan, claims that from 1999 to 2010 employees and agents of SAC Capital obtained and traded on material non-public information, conduct that was “pervasive and on a scale without known precedent in the hedge fund industry.” According to the 40-page indictment filed in federal court in Manhattan, SAC Capital’s encouragement of its portfolio managers and research analysts “to pursue aggressively an information ‘edge’ overwhelmed limited SAC compliance systems” and “fostered a business culture within SAC in which there was no meaningful commitment to ensure that such ‘edge’ came from legitimate research and not inside information.”
This is a big case that has been brewing for a very long time, with the SEC and FBI investigating SAC for over six years before this indictment was unsealed. In 2010, the FBI raided the offices of a couple hedge funds owned by former SAC employees, and in 2011 two SAC employees were charged with insider trading. And just a few days ago Steve Cohen, the founder and owner of SAC Capital Advisors, was sued by the SEC for failing to supervise two of his senior employees who engaged in insider trading.
The 40-page indictment that was unsealed today, which you can read here, alleges four counts of securities fraud and one count of wire fraud against SAC Capital Advisors and its affiliates.
Since SAC is a company and not a person, no one will go to prison as a result of this indictment. However if SAC is convicted on these charges, they could face heavy fines and lose valued customers like Goldman Sachs and Morgan Stanley. If that happens, it is conceivable for SAC to go out of business entirely.
You got to believe that the investigation is continuing, and that the FBI has their targets set on Steve Cohen. Bit by bit they have been tightening the noose: first by going after former SAC employees, then current employees, then filing a civil suit against him, and now indicting his company. I have a feeling Steve Cohen may find himself in handcuffs sooner rather than later.