Tags: SAC | Cohen | insider trading | charges

Feds Set to Level Criminal Charges Against SAC Capital

By Dan Weil   |   Wednesday, 24 Jul 2013 01:35 PM

Federal prosecutors are preparing to launch criminal charges for insider trading against SAC Capital Advisors, the hedge fund firm run by billionaire Steven Cohen, within days, knowledgeable sources tell The New York Times and The Wall Street Journal.

An indictment could come this week, according to The Journal. However, Cohen himself isn't expected to be charged criminally.

A successful prosecution would likely shut down SAC as a commercial firm, though it could operate in some form as a vehicle for managing Cohen's own money.

Editor's Note:
Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

His and his employees' money accounts for about $8 billion of the firm's $10 billion in assets. The firm's total has fallen from $15 billion at the beginning of the year, as customers have withdrawn money.

If prosecutors win a trial, "commercially, it's over," Leor Landa, a partner specializing in investment management at Davis Polk & Wardwell, tells The Journal. "You're a family office, not an investment adviser."

But Cohen could maintain a "large and sophisticated" firm, thanks to his own wealth, says Landa, who isn't involved in the SAC case.

There hasn't been a major financial firm to survive a criminal indictment.

An indictment would probably lead more investors to withdraw their money from SAC. And it could push the firm's trading partners — virtually all of Wall Street's biggest banks — to halt dealings with SAC.

To be sure, it's still possible that the firm could forge a settlement with the government to avoid criminal prosecution.

The Justice Department is generally reluctant to pursue criminal cases against companies, because shutdowns can lead to major job losses. The collapse of accounting firm Arthur Andersen in 2002 cost 28,000 workers their jobs. SAC had about 1,000 employees at the beginning of the year.

A company can be punished for criminal behavior of its workers, even those low on totem pole, The Journal reports. But federal guidelines advise saving prosecution of companies for situations in which the criminal activity runs throughout the company.

At an investment conference last week, Manhattan U.S. Attorney Preet Bharara rejected the notion that the Justice Department would hold back from bringing criminal charges against companies in fear of collateral damage, The Journal adds.

His office would have no trouble going after widespread "malfeasance" at a company, Bharara said, while stressing that he wasn't referring to SAC. "I don't see anyone that's too big to indict. No one is too big to jail," he said.

The government has been investigating SAC for years as part of a broader campaign against insider trading on Wall Street.

The five-year deadline for prosecuting some of SAC's alleged insider trading has passed, The Times reports. But in a criminal prosecution, as long as one of the trades cited occurred within the last five years, the government can include older ones as well.

Cohen already faces a legal challenge from the Securities and Exchange Commission, which filed civil charges against him last week, accusing the billionaire of failing to adequately supervise employees who have been accused of insider trading, according to The Times.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

© 2015 Newsmax Finance. All rights reserved.

1Like our page

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

© Newsmax Media, Inc.
All Rights Reserved