Hedge fund to pay $1.8bn in penalties as part of deal that regulators say they plan to use as a warning to other companies

SAC Capital has become the first hedge fund to plead guilty to insider trading after an extensive six-year dragnet by government regulators, who issued a warning to future "Gordon Gekkos" and imposed fines that totalled $1.8bn.

"No institution should rest in the belief that is too big to jail," said Preet Bharara, the US attorney for the southern district of New York. "That is a moral hazard."

April Brooks, who heads the New York field office of the FBI, said the proposed settlement should act as a warning to "those who venerate Gordon Gekko", referring to the Machiavellian capitalist in the 1987 movie Wall Street who popularized the phrase "greed is good".

SAC has agreed to a passel of penalties, which follow a July indictment by Bharara's office. It must pay a $900m fine and forfeit another $900m to the federal government, though $616m that SAC companies have already agreed to pay to settle parallel actions by the US Securities and Exchange Commission (SEC) will be deducted from the $1.8bn.

Most of the money will come from founder Steven A Cohen rather than outside investors. Bharara said the fine would not be tax-deductible.

Anyone working at SAC currently will also have to face obstacles to their futures. No one at the firm, even those who co-operated, will have immunity from further prosecution, Bharara said.

SAC also agreed to accept a five-year probation period – in which any employee seeking to start a new investing business would require government permission – and agreed to shut down its advisory business, which accepts money from outside investors.

The agreement still has to be approved by a judge, officials said.

The move isolates SAC, which once reigned at the center of the hedge-fund world and whose founder was listed by Forbes as being worth $8.8bn. "SAC will no longer be able to invest anyone's money but their own," said Brooks.

Brooks quoted the July indictment, which called the insider trading at SAC "substantial, pervasive and on a scale without known precedent", adding that "it was nothing short of institutional failure".

She also indicated that government regulators, including the Department of Justice, FBI and the SEC, plan to use SAC as a lesson to other fund managers. Brooks said officials will "relentlessly pursue" insider traders. "How your employees make their money is just as important as how much they make," she said.

In a statement, FBI assistant director George Venizelos said SAC Capital's plea demonstrates "that cheating and breaking the law were not only permitted but allowed to persist".

In the July indictment, prosecutors said evidence against SAC was "voluminous" and included electronic messages, instant messages, court-ordered wiretaps and consensual recordings.

Prosecutors said a work culture at SAC permitted, if not encouraged, insider trading. Authorities alleged that SAC Capital earned hundreds of millions of dollars illegally from 1999 to 2010 as its portfolio managers and analysts traded on inside information from at least 20 public companies. Bharara in July said SAC Capital "trafficked in inside information on a scale without any known precedent in the history of hedge funds”.

Of the roughly $15bn in assets that SAC managed as of earlier this year, about half belonged to Cohen and his employees. The rest was client money.

Cohen was not named as a defendant in the case. He was repeatedly referenced in court papers at the "SACowner" who "enabled and promoted" insider trading practices.

In a separate case, the SEC is pursuing Cohen, SAC's founder, in an attempt to ban him from the securities industry for failing to prevent insider trading at the company, which he founded in 1992. Cohen has disputed the SEC's allegations. That case remains unresolved.

As part of the deal announced Monday, prosecutors said they will not assert claims for financial recovery against any present owner or shareholder of the SAC defendants for insider trading on behalf of the SAC up to 21 December last year, except for criminal fines or forfeiture claims related to insider trading profits or avoided losses. The agreement also reserved the right of prosecutors to charge others criminally.

Paul Argenti, a professor at Dartmouth College's Tuck School of Business who studies corporate reputation, said the settlement, despite its size and impact, would likely not serve as a deterrent to others who might be pondering insider trading.

"Think about how many people didn't get fined today that should have," Argenti said. "Think about how many companies have done things like this before, over a long period of time. When I track how people think of reputation in the financial sector and business, it's never been worse. Trust in business is at an all-time low. People look at this and say, 'Look at this. They made tons of money and now we know how.'"

The Associated Press contributed to this report.