SAC Pleads Guilty To Five Counts Of Securities Fraud; Agrees To Pay Largest Fine In History for Insider Trading Offenses

http://blogs.orrick.com/securities-litigation/files/2012/10/iStock_000001197671XSmall-200x150.jpgSAC Capital Advisors pleaded guilty last Friday to securities fraud claims brought by the U.S. Attorney in Manhattan.  If approved, the deal would require SAC to pay a $1.2 billion penalty, including a $900 million criminal fine and $284 million civil forfeiture, and to cease operation of its outside investment business.  Appearing on behalf of SAC, Peter Nussbaum, general counsel for the hedge fund, offered the plea of five counts of securities and wire fraud charges based on the allegations that the company allowed rampant insider trading among its employees.  More than merely turning a blind eye, SAC allegedly went out of its way to hire portfolio managers and analysts who had contacts at corporations and failed to monitor and prevent trades based on their inside knowledge.

Mr. Nussbaum expressed “deep remorse” for each individual at SAC who broke the law, taking responsibility for the misconduct which occurred under SAC’s watch.  He also noted that “even one person crossing the line into illegal behavior is too many,” but emphasized that despite the six former employees that SAC admitted engaged in insider trading, “SAC is proud of the thousands of people who have worked at our firm for more than 20 years with integrity and excellence.”  The six former employees, Noah Freeman, Richard Lee, Donald Longueuil, Jon Horvath, Wesley Wang and Richard C.B. Lee, had already pled guilty to insider trading-related claims.  Critics have called for the judge to reject the plea, arguing that SAC has not taken enough responsibility.  Prosecutors have indicated that had the case gone to trial, evidence would have shown that far more than six people were involved in the insider trading there.

Even if the plea is approved, this does not end SAC-related legal battles.  While SAC reached a settlement with the SEC earlier this year, the SEC also filed an administrative action against founder Steven A. Cohen for failure to supervise the hedge fund.  In addition, this plea does not affect two other former hedge fund managers at SAC who will be starting trial soon.  This deal also does not prevent the government from filing against Cohen individually, even though SAC and other individuals may be out of the picture.

Rather than offering preliminary approval as some expected, Judge Laura Taylor Swain of the Southern District of New York indicated she needed time to review the plea along with the sentencing report.  The agreement allows SAC to withdraw its guilty plea if Judge Swain rejects the agreement.  The hearing on sentencing is scheduled for March 14, 2014.

A copy of the complaint is here and Mr. Nussbaum’s statement here.

 

Topics:  Civil Forfeiture, Civil Monetary Penalty, Compliance, Fines, Insider Trading, Investment Adviser, SAC Capital, Securities Fraud, White Collar Crimes

Published In: Business Torts Updates, Criminal Law Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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