Billionaire's hedge fund faces criminal charges
Steven Cohen's SAC accused of fraud involving hundreds of millions of US dollars
The hedge fund operated by embattled billionaire Steven Cohen was hit with white-collar criminal charges yesterday that accused the fund of making hundreds of millions of dollars illegally, and a related government lawsuit said insider trading was pervasive and unprecedented at the firm.
SAC Capital Advisors was charged in federal court in Manhattan in an indictment with wire fraud and four counts of securities fraud; prosecutors allege the crimes were carried out from 1999 until at least 2010.
Cohen himself wasn't named as a defendant in the criminal case, but the charges could threaten to topple a firm he founded and that once managed US$15 billion in assets. The charges came less than a week after federal regulators accused him in a related civil case of failing to prevent insider trading at the firm.
The government's related civil lawsuit, which was filed against SAC yesterday, said insider trading at the company was "substantial, pervasive and on a scale without known precedent in the hedge fund industry."
The criminal charges said SAC's "relentless pursuit of an information 'edge' 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."
It added: "The predictable and foreseeable result, as charged herein, was systematic insider trading by the SAC entity defendants resulting in hundreds of millions of dollars of illegal profits and avoided losses at the expense of members of the investing public."
The problem was compounded when SAC on numerous occasions failed to use effective compliance procedures or practices designed to root out wrongdoing.
Last week, an SAC Capital spokesman said that the related allegations brought by the Securities and Exchange Commission have "no merit" and that "Steve Cohen acted appropriately at all times."
SAC Capital has been at the centre of one of the biggest insider-trading fraud cases in history. Four employees have already been criminally charged with insider trading, and two of them have pleaded guilty. And an SAC affiliate has agreed to pay US$615 million to settle SEC charges.