Federal prosecutors are considering charging hedge fund SAC Capital Advisors LP as a criminal enterprise through a powerful legal tool used against the Mafia and drug gangs, people familiar with the probe said.
It is rare for investment firms to be charged criminally under the Racketeer Influenced and Corrupt Organizations Act, commonly known as RICO. Such a step would require approval from top Justice Department officials.
The potential RICO strategy comes amid an escalating investigation into whether SAC and its billionaire founder, Steven A. Cohen, traded on inside information. It is now crunchtime for the U.S. as it approaches a five-year legal deadline in July on whether to file securities-fraud charges in the probe.
Under RICO, prosecutors could file charges in connection with crimes committed over a decade, as long as any act that is part of the alleged enterprise occurred within the past five years. The law also contains stiff forfeiture provisions. Each fraud count could carry up to 20 years in prison.
Mr. Cohen hasn't been accused of wrongdoing, and SAC has said he and the firm acted appropriately. A spokesman for SAC declined to comment on the potential use of RICO.
Reuters Steven A. Cohen, founder and chairman of SAC Capital Advisors, shown in 2011.
The possible use of the organized crime statute, earlier reported by Fox Business Network, illustrates the aggressiveness of and the pressure on the Manhattan U.S. attorney's office and the Federal Bureau of Investigation after a string of successful insider-trading prosecutions, legal observers said. The U.S. has spent years investigating SAC, one of the most powerful firms on Wall Street, with $15 billion of assets under management.
"It is generally a head shot to an organization accused of being a racketeering enterprise, even if that at the end of the day the organization is fully exonerated,"