The government has pursued criminal cases against SAC employees, but its founder. Justice strikes $1.8B deal with SAC

Hedge fund SAC Capital has agreed to plead guilty to criminal and civil charges related to insider trading and pay an historic $1.8 billion penalty.

The proposed agreement revealed Monday would address charges that federal prosecutors filed in July, when U.S. Attorney Preet Bharara described the firm as a “veritable magnet for market cheaters” that “seeded itself in with corrupt traders.” SAC and its employees have been accused of using inside information to trade pharmaceutical and tech stocks.


The settlement is the largest ever financial penalty for insider trading, according to the plea agreement released Monday, and follows years of government investigations into the high profile fund and its founder Steven Cohen as part of a broader crackdown on insider trading.

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The government’s scrutiny of the firm and Cohen is likely to continue.

Bharara said at a press conference Monday that a criminal investigation is ongoing, and that with respect to individuals at SAC or other firms “we will continue to pursue insider trading investigations and follow the facts wherever they lead.”

While the guilty pleas absolve certain SAC corporate entities from further prosecution for insider trading between 1999 and December 2012, the government said the agreement provides no immunity to any person and wouldn’t restrict prosecutors from charging individuals with crimes.

Bharara said that “individual guilt is not the whole of our mission.”

“Sometimes blameworthy institutions need to be held accountable too,” he said. “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.”

Judges must still approve the settlement.

( Earlier on POLITICO: SEC files charges against hedge fund founder Cohen)

SAC will also exit the business of advising outside investors under the plea agreement, but the firm could continue on as a so-called “family office” that would invest Cohen’s fortune.

The government has pursued criminal charges against SAC employees, but not Cohen, whom the SEC charged in July with failing to supervise employees accused of insider trading. Cohen has been fighting the civil charges.

“We take responsibility for the handful of men who pleaded guilty and whose conduct gave rise to SAC’s liability,” said a spokesman for SAC, which is headquartered in Stamford, Conn. “The tiny fraction of wrongdoers does not represent the 3,000 honest men and women who have worked at the firm during the past 21 years.”

Sen. Chuck Grassley (R-Iowa), who in 2011 sought information on whether regulators were investigating suspicious SAC trades, said in a statement Monday that he is looking for a continued focus on “strong prosecution” and admissions of wrongdoing.

“Letting up on Wall Street wrong-doers is part of what led to the financial crisis in the first place,” he said.

In the plea agreement released Monday, the Justice Department said that the $1.8 billion penalty is broken down into a $900 million fine for criminal charges and $900 million for a related civil money laundering case. As part of the agreement, SAC will be able to credit an earlier $616 million settlement with the Securities and Exchange Commission toward the $1.8 billion penalty.

Bharara said the financial penalty will not fall on third party investors because no outside money will be used to pay it, minimizing market disruption. He added that neither SAC nor any individual paying the penalty will be permitted to claim a tax deduction or a tax benefit related to the fine.

Cohen and his wife Alexandra in recent years have been active in donating to politicians, including to the PACs of Senate Majority Leader Harry Reid, Senate Minority Leader Mitch McConnell and the National Republican Senatorial Committee. A number of SAC employees have also donated thousands of dollars.

After Cohen was charged by the SEC in July, Rep. John Larson (D-Conn.) offered to forfeit $2,500 in campaign funds donated by Cohen last year.