US federal prosecutors threw the book today at SAC Capital Advisors, forcing the hedge fund to plead guilty to insider trading and pay a total of $1.8 billion to the government, the largest penalty ever for the offense.
The case revolved around allegations that SAC portfolio managers repeatedly obtained inside information about major firms and used it to beat the markets. US Attorney Preet Bharara, the lead prosecutor, presented it as a major victory against insider trading by punishing an entire firm for a culture of corruption.
The government banned the fund from managing client money. However, that won’t really shut it down. Even at its peak valuation of $15 billion, well over half the company’s capital belonged to its owner and namesake, Steven A. Cohen. Even before the firm was criminally indicted in July, investors had pulled significant amounts of their money out of the fund. Now it is expected that SAC will continue as a private investment vehicle for Cohen’s remaining $9 billion and the money belonging to his employees.
SAC’s portfolio is reportedly up 15.95% return year-to-date, and Cohen himself is expected to earn enough to cover most of the cost of the pricey settlement. Forbes estimates that his net worth will still be above $7 billion at the end of the year, which would put him 59th on the magazine’s list of the richest Americans, down from his current spot at 43.
It’s worth noting that the last major financial institution to plead guilty to a crime was Drexel Burnham Lambert, the institutional home of Michael Milken, who made billions investing in distressed debt in the 1980s before pleading guilty to charges brought by the Securities and Exchange Commission. Like Cohen, Milken retained vast wealth, and today hosts a popular yearly conference for investors. Milken, however, spent 22 months in prison.
Cohen still faces individual civil charges from the SEC, which is seeking to bar him from the securities industry.