Manhattan U.S. Attorney Announces Guilty Plea Agreement with SAC Capital Management Companies
SAC Management Companies Agree to Plead Guilty to All Counts in Criminal Indictment, Pay $1.8 Million, and Terminate SAC Capital’s Investment Advisory Business
|U.S. Attorney’s Office November 04, 2013|
Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director in Charge of the New York Office of the Federal Bureau of Investigation (FBI), announced today an agreement (the “agreement”) to resolve insider trading charges against four companies—SAC Capital Advisors LP (SAC Capital LP), SAC Capital Advisors LLC (SAC Capital LLC), CR Intrinsic Investors LLC (CR Intrinsic), and Sigma Capital Management LLC (Sigma Capital), collectively the
"SAC companies"—that are responsible for the management of a group of affiliated hedge funds, collectively (the “SAC hedge fund” or “SAC”).
Under the agreement, which is subject to court approval, the SAC companies will plead guilty to each count in which they are charged of an indictment unsealed in July of this year charging the SAC companies with securities fraud and wire fraud in connection with a large-scale insider trading scheme. The agreement imposes a $1.8 billion financial penalty on the SAC companies—the largest insider trading penalty in history—split between a $900 million fine in the criminal case (the criminal case) and a $900 million forfeiture judgment in a civil money laundering and forfeiture action (the forfeiture action) filed by the government simultaneously with the criminal charges. It also provides that the SAC companies and their affiliates will no longer accept outside investor funds and will shut down operations as an investment adviser.
The agreement between the government and the SAC companies to plead guilty to all the charges in the indictment in which they are charged and resolve the forfeiture action is subject to judicial review and approval. The government submitted the agreement this morning to U.S. District Judge Laura T. Swain, who is presiding over the Criminal Case, captioned United States v. S.A.C. Capital Advisors, L.P., et al., 13 Cr 541 (LTS), and U.S. District Judge Richard J. Sullivan, who is presiding over the forfeiture action, captioned United States v. S.A.C. Capital Advisors, L.P., et al., 13 Civ. 5182 (RJS). The agreement has no force unless and until it is approved by the district judges.
Manhattan U.S. Attorney Preet Bharara said, “As I said four years ago, at the time of our first major insider trading arrests, greed sometimes is not good. And there are at least 75 convicted insider trading defendants who, today, would likely agree. But individual guilt is not the whole of our mission. Sometimes, blameworthy institutions need to be held accountable too. No institution should rest easy in the belief that it is too big to jail. That is a moral hazard that a just society can ill afford. Today, SAC Capital, one of the world’s largest and most powerful hedge funds, agreed to plead guilty, shut down its outside investment business, and pay the largest fine in history for insider trading offenses. That is the just and appropriate price for the pervasive and unprecedented institutional misconduct that occurred here.”
FBI Assistant Director in Charge George Venizelos said, “What SAC Capital’s plea demonstrates is that cheating and breaking the law were not only permitted but allowed to persist. The result is $1.8 billion in fines and forfeiture, the largest penalty in an insider trading case ever, and termination of their investment advisory business. The problem of insider trading is real. For companies that willfully turn a blind eye, be on notice: how your employees make money is just as important as how much they make. The FBI’s investigation into insider trading on Wall Street, on Main Street, in hedge funds, at expert networking firms, and anywhere else, continues.”
As alleged in the indictment, from 1999 through at least 2010, numerous employees of the SAC companies obtained and traded on material, non-public information that they were not permitted to have (“inside information”), or recommended trades based on such information to SAC portfolio managers (“SAC PMs”) or the SAC owner. Specifically, the indictment charges the SAC companies with insider trading offenses committed by numerous employees, occurring over the span of more than a decade and involving the securities of more than 20 publicly traded companies across multiple sectors of the economy. As charged in the indictment, the systematic insider trading engaged in by SAC PMs and research analysts was the predictable and foreseeable result of multiple institutional failures. The failures alleged included hiring practices heavily focused on recruiting employees with networks of public company insiders, the failure of SAC management to question employees about trades that appeared to be based on Inside Information, and ineffective compliance measures that failed to prevent or detect such trading, particularly prior to late 2009.
The complaint in the forfeiture action alleges that the SAC companies engaged in money laundering by commingling the illegal profits from insider trading with other assets, using the profits to promote additional insider trading, and transferring the profits with the assistance of financial institutions.
The agreement announced today has two component parts: first, a plea agreement to resolve the criminal case, and second, a stipulation and proposed order to resolve the civil money laundering and forfeiture claims in the forfeiture action. Both documents have been submitted to the district judges for review. If approved, the agreement would provide for the following:
- The SAC companies will plead guilty to all counts of the Indictment in which they are charged, which include a securities fraud and wire fraud count for each of the SAC companies.
- The SAC companies will pay a $1.8 billion financial penalty, consisting of a $900 million fine in the criminal case and a $900 million judgment in the forfeiture action. Because the SAC companies have already agreed to pay $616 million to the U.S. Securities & Exchange Commission to resolve related civil insider trading charges, that amount will be credited against today’s penalty, and therefore, the additional payment required under this agreement will be approximately $1.2 billion. The SAC companies have further agreed that neither they nor any other person or entity paying any portion of the $1.8 billion financial penalty shall claim any tax deduction or credit for any money paid in resolving the criminal case and the forfeiture action.
- The SAC companies will no longer accept third party investor funds and will terminate operations as an investment adviser.
- The SAC companies will each be sentenced to five-year terms of probation—the maximum allowed by law—with a provision to end probation earlier if the SAC Companies cease operating entirely. The terms of probation will require, among other conditions, that the SAC Companies employ appropriate compliance measures to identify and prevent insider trading. Additionally, the insider trading compliance measures of the SAC companies and any related entities trading securities will be reviewed by an independent compliance expert who will direct the SAC companies to correct identified deficiencies.
The agreement would resolve the criminal charges against the SAC companies but does not provide any individual with immunity from prosecution. Under the terms of the agreement, the government is not prevented from charging any individual with insider trading offenses and seeking the maximum prison term authorized by law for such offenses.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a co-chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions, and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Arlo Devlin-Brown, Antonia M. Apps, and John T. Zach are in charge of the prosecution, and Assistant U.S. Attorneys Sharon Cohen Levin, Chief of the Asset Forfeiture Unit, Micah Smith, and Christine Magdo are responsible for the forfeiture aspects of the case.
The agreement relates only to the guilt of the SAC companies and resolves pending charges against only the SAC companies—it does not include any admissions pertaining to individual defendants. All criminal defendants are presumed innocent unless and until proven guilty.
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