On Monday, SAC Capital agreed to plead guilty to five counts
of insider trading violations and pay a record $1.2B criminal penalty and
another $600M to the Securities and Exchange Commission, becoming the first
wall street firm since the late 1980s to confess to criminal conduct. Also part
of the deal is a five-year probationary period on the firm and a ban on
managing outside investors’ money. The firm’s founder and namesake Stephen A.
Cohen and his $8.8B net worth managed to escape without criminal prosecution,
although the deal did not grant future immunity for any individual. Of the $15B
that SAC managed, about half of it belongs to Cohen and his employees.
Cohen built SAC Capital into one of the biggest and most powerful hedge funds in the financial world. The firm was exceptionally competitive and portfolio managers were handsomely rewarded for trading success and swiftly punished for losses. The firm achieved great success, but the criminal investigation began 11 years ago after the firm posted average annual returns of nearly 30%, which was unprecedented even for them.
Charges include traders using confidential inside information to make bets on pharmaceutical firms that netted more than $276M and large gains posted on the back of insider information from Dell computers. In all, the list includes over 20 public companies; with at least eight former SAC employees have been charged with insider trading. Most of those traders have pled guilty to the charges.
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