SAC Capital will plead guilty to insider trading charges brought by the Justice Department and pay $1.8 billion in penalties.
The $1.8 billion, as reported Monday morning by the Wall Street Journal, will be the largest penalty the government will have ever charged in an insider trading case. That $1.8 billion includes nearly $1.2 billion in new penalties, plus $616 million that the firm has already agreed to pay the Securities and Exchange Commission.
The Justice Department indicted the hedge fund in July, saying SAC obtained "non-public information...relating to publicly-traded companies" and used that information to boost its returns. The indictment alleges SAC hired employees with "proven access" to contacts who would likely have inside information and further pushed employees to "pursue aggressively an information 'edge'."
The fund had insisted that it did not engage in insider trading, but as part of this settlement, the firm will plead guilty to all counts and also be under probation for five years. In addition, SAC will be required to stop all investment advisory business.
The deal is notable not only for its size but for the status of the firm in question. SAC at one point managed over $15 billion in assets. The firm was also known as a particularly successful hedge fund, earning returns of more than 25 percent over 20 years, the Journal reports. It also ends an investigation that has covered more than a decade, with federal investigators scrutinizing company practices from 1999 through 2010.
In a letter to U.S. District Court judges, U.S. Attorney Preet Bharara acknowledged the unprecedented size of the fines.
"The aggregate $1.8 billion financial penalty is – to the Government's knowledge – the largest financial penalty in history for insider trading offenses," Bharara wrote. He characterized the penalties as "steep but fair" and "commensurate with the breadth and duration of the charged criminal conduct."
Despite the hefty penalty, more legal hurdles await SAC. Founder Steven Cohen still faces a Securities and Exchange Commission civil lawsuit charging that he "failed reasonably to supervise" two senior employees who engaged in insider trading, as the New York Times reports. That suit would also ban Cohen from the securities industry. In addition, six former SAC employees have also pled guilty to insider trading.