Federal prosecutors filed criminal charges against hedge fund giant SAC Capital Advisors on Thursday, nearly one week after the SEC filed a related civil case against the firm's owner, accusing him of failing to prevent insider trading.
The 41-page indictment includes four counts of securities fraud and one count of wire fraud and alleges that the fund made hundreds of millions of dollars illegally. The indictment also claims that several employees committed insider trading offenses from 1999 to 2010, which were "made possible by institutional practices that encouraged the widespread solicitation and use of illegal inside information." "Unlawful conduct by individual employees and an institutional indifference to that unlawful conduct resulted in insider trading that was substantial, pervasive and on a scale without known precedent in the hedge fund industry," the indictment says.
The company has been under investigation for several years, and numerous employees have pleaded guilty to insider trading charges. Steven Cohen formed the hedge fund, which is now a $15 billion company, with $25 million in 1992, the Financial Times reported.
"This is a case about corporate conduct and corporate responsibility," FBI Assistant Director George Venizelos said in a statement, according to The Associated Press. "SAC Capital and its management fostered a culture of permissiveness. SAC not only tolerated cheating, it encouraged it."
The indictment marks the end of a four-year probe into suspected securities fraud within the company. The Wall Street Journal reported that SAC has been the highest-profile target of FBI insider trading investigations in recent years.
Although Cohen, was not named as a defendant in the case, the Securities and Exchange Commission filed a separate civil lawsuit against him last week that accused him of failing to supervise employees who were suspected of insider trading, according to The New York Times.
Before that, the company paid $616 million to settle other civil charges with the SEC in March, the Financial Times reported, although Cohen has denied any wrongdoing.
In response to the most recent civil suit against Cohen, an SAC spokesman told The Associated Press that the allegations have "no merit" and that Cohen acted "appropriately at all times."
The criminal charges said SAC's insider trading scheme was conducted with the help of portfolio managers and research analysts, who gathered inside information from "dozens of publicly-traded companies across multiple industry sectors."
The employees used the information themselves, the indictment says, and even recommended trades to Cohen based on that information.
"The relentless pursuit of an information 'edge' fostered a business culture within SAC in which there was no meaningful commitment to ensure that such 'edge' came from legitimate research and not inside information," the indictment says.
Richard Lee, a portfolio manager at SAC, pleaded guilty to conspiracy and securities fraud charges on Tuesday. He also admitted that he obtained insider information and that he bought and sold securities based on that information, the indictment says.