5:46pm

Mon November 4, 2013
Business

SAC Capital To Pay $1.2 Billion Insider Trading Settlement

Originally published on Mon November 4, 2013 7:42 pm

Transcript

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As we mentioned a few minutes ago, the hedge fund company SAC Capital has agreed to plead guilty to criminal charges of insider trading. The agreement with the Justice Department also calls for a huge fine, $1.2 billion. And as NPR's Jim Zarroli reports, the company will also be barred from taking money from outside investors.

JIM ZARROLI, BYLINE: SAC has long been one of the biggest and most powerful names in the hedge fund business. It could charge its investors some of the highest fees in the industry because it racked up impressive returns almost every year. Now, its reputation is in tatters and its future is uncertain at best. U.S. Attorney Preet Bharara announced today that SAC has agreed to settle four criminal charges of insider trading.

PREET BHARARA: No institution should rest easy in the belief that it is too big to jail. That is a moral hazard that a just society can ill afford.

ZARROLI: In addition to the fines, the company agreed to five years of probation. The guilty plea is the latest chapter in a five-year federal investigation of the firm, one that has already resulted in charges against eight SAC employees. U.S. officials say the firm's founder, Steven Cohen, hired portfolio managers with extensive ties to the industries they covered. They regularly tapped the people they knew for inside information such as upcoming earnings reports. April Brooks is special agent at the FBI's New York field office.

APRIL BROOKS: SAC focused on hiring the best talent, talent who was equipped with extensive networks to circumvent traditional lines of communication, talent who would be prepared to get confidential information to fuel their illicit trades.

ZARROLI: U.S. officials said employees were expected to use the information they received to trade for their portfolios and they would allegedly pass on tips to Cohen so he could make money off them, too. Officials say the firm got away with this for years because its compliance department was so weak and because employees understood that they had to be especially discreet about what they were doing.

In a statement issued today, SAC said those who committed insider trading represent a tiny fraction of the 3,000 honest men and women who work at the firm. Perhaps the biggest blow for SAC is that it will essentially have to close up shop as an outside investment adviser. Again, April Brooks.

BROOKS: In layman's terms, SAC will no longer be able to invest anyone's money but their own.

ZARROLI: Instead, the firm will exist solely to invest Steven Cohen's money and that of his family. That's no small change. Cohen is said to be worth nearly $10 billion and lives in a 35,000-square-foot house that has its own ice skating rink. Cohen himself is facing civil charges of failing to supervise his employees and U.S. officials made clear today that the criminal case isn't closed yet. Dan Richman is a professor of law at Columbia Law School.

DAN RICHMAN: I don't imagine that Steve Cohen is resting soundly after this because the government has made its continuing mistrust in him quite clear.

ZARROLI: Richman says there are trials coming up that could shake loose additional evidence against Cohen and his firm. Of the eight employees charged in the case, six have pleaded guilty but two others will stand trial. Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.