U.S. to put SAC hedge fund out of business over insider trading

Reuters

By Emily Flitter

NEW YORK (Reuters) - Billionaire investor Steven A. Cohen's days as a hedge fund manager may be over with his SAC Capital Advisors agreeing to plead guilty to insider trading charges and pay a record $1.8 billion in fines and forfeitures.

But Cohen, one of Wall Street's best known traders, will likely continue to be a major player for years to come. He has not been personally charged with any crime and has some $9 billion of his own money that he is expected to manage through a family office once his hedge fund's plea deal is cleared by the courts.

The hedge fund founded by Cohen will shut down its investment advisory business, according to a settlement which, if approved, would also resolve civil forfeiture action against SAC and its affiliates, prosecutors said on Monday.

Manhattan U.S. Attorney Preet Bharara outlined the deal in a letter to federal judges in the case that accused SAC Capital of presiding over a culture in which employees flouted the law and were encouraged to tap personal networks for inside information about publicly traded companies.

"The government believes that the proposed global resolution is fair, reasonable and firmly promotes the interests of justice, deterrence and respect for the law," Bharara wrote.

The agreement does not preclude future criminal charges against individuals in the investigation, according to the letter.

Jonathan Gasthalter, a spokesman for SAC Capital, did not immediately respond to a request for comment.

The deal will punctuate one of the longest-running, highest-profile insider trading investigations in recent years, although it will not necessarily end the effort.

U.S. prosecutors in July charged the hedge fund - which managed as much as $14 billion this year before investors began withdrawing money - on one count of wire fraud and four counts of securities fraud. As part of Monday's deal, SAC has agreed to plead guilty to all five counts.

The total settlement amount of $1.8 billion is made up of $900 million in fines and forfeiture of $900 million. The total forfeiture amount includes a $616 million sum that SAC had already agreed to pay earlier this year to settle civil lawsuits by the U.S. Securities and Exchange Commission for insider trading, according to Bharara's letter in U.S. District Court in Manhattan.

If SAC continues to trade in securities, it will have to install an independent, government-approved compliance monitor to ensure its future trades are legitimate and not based on non-public information, the letter said.

Bharara will appear alongside April Brooks, who is in charge of the Federal Bureau of Investigation's criminal division in New York, at a press conference at 1 p.m. EST (1800 GMT).

SAC's founder Cohen is still facing an administrative action brought in July by the SEC accusing him of failing to properly supervise his employees. The case was suspended in August after the firm was indicted. Monday's deal with prosecutors did not include a resolution of that case.

Cohen himself has not been charged with any criminal wrongdoing. The indictment against SAC includes charges of wire fraud and securities fraud, and named seven one-time employees of the firm who have either been charged or convicted of insider trading.

Since early this year, when the probe began to heat up, Cohen has been slowly returning money to outside investors and was widely expected to convert his operation to a family office, merely managing his own billions, by early next year.

(Editing by Jeffrey Benkoe and Grant McCool)

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