Preet Bharara, the crusading U.S. attorney, has beat Steven A. Cohen, once considered the most successful hedge fund trader of all time.
In a press conference this afternoon, Bharara, the U.S. Attorney in the Southern District of New York, described SAC as "engaging in insider trading that was substantial, pervasive, and in a scale without precedent in history of hedge funds."
The U.S. attorney's office announced this morning that SAC Capital Advisors, Cohen's hedge fund that contains several smaller funds and companies, will plead guilty to five counts of securities fraud. While Cohen himself will not plead guilty, he is identified several times in the July federal indictment.
Bharara said that today's guilty plea will have no bearing on two insider trading cases involving former SAC traders and "doesn't provide pleas of guilt or criminal protection or immunity going forward."
The $1.8 billion settlement includes $616 million SAC paid to satisfy charges that it insider traded two stocks. The payment, if approved by a judge, would be the largest ever for insider trading.
Bharara also said that no outside investor money would be used to pay the penalty and that "neither SAC nor any person will be able to claim a tax deduction or tax benefit in connection with this payment."
The penalty, if approved, would be worth about a fifth of SAC's total assets.
At its peak, the fund managed around $15 billion of outside money, but is now down to only $9 billion in assets under management, mostly Cohen's own fortune.
The criminal indictment covered more than 10 years of what prosecutors described as "systematic" insider trading that involved SAC traders acquiring information about companies financial results and products and then making large trades, buying or selling the companies' stock, before the information became more widely known.
The indictment said the traders exhibited "a pattern of obtaining Inside Information from dozens of publicly-traded companies across multiple industry sectors," and then making trades or recommending trades to Cohen.
While the indictment nor the guilty plea named Cohen, prosecutors said that Cohen "fostered a culture that focused on not discussing Inside Information too openly, rather than not seeking or trading on such information in the first place."
Bharara defended going after SAC as a whole, along with several subsidiary companies, saying "no institutions should rest easy in the belief that it is too big to jail" and that "sometimes institutional punishment is essential to serve justice and deter misconduct."
The guilty plea for the firm follows a years-long investigation by federal prosecutors that has seen six former SAC traders pleading guilty and two more still waiting to go on trial.
April Brooks, the agent in head of the criminal division of the FBI's New York office who joined Preet Bharara in the press conference this afternoon, said that today's plea deal was the result of an investigation that started in 2006. "We will pursue this anti competitive behavior until…every hedge fund owner stops trading on insider information," Brooks said.
There is still an SEC civil action against Cohen that alleges that he failed to properly supervise traders engaged in insider trading.
During his press conference, Bharara refused to rule out further charges against SAC or any of its employees for insider trading.