Hedge-fund group SAC Capital Advisors LP and federal prosecutors in Manhattan are expected to announce a record insider-trading settlement Monday, according to a person familiar with the matter.
Under the deal, the firm run by Steven A. Cohen is expected to agree to pay about $1.2 billion in criminal penalties, plead guilty to an indictment obtained in July by prosecutors alleging the firm encouraged rampant insider trading, and stop managing outside money. The penalty would be the largest ever for an insider-trading case.
Steven A. Cohen Bloomberg
The Wall Street Journal last week reported that the settlement would be announced by this week, along with likely details of the agreement. Until the settlement is finalized and filed in court, there is a chance it could fall through or be delayed.
SAC, one of the most profitable hedge funds on Wall Street, with returns exceeding 25% over two decades, has previously denied it encouraged or permitted insider trading.
The payment would come on top of a $616 million civil settlement that SAC reached with the Securities and Exchange Commission in March to resolve two alleged episodes of insider trading. The firm didn’t admit or deny wrongdoing in that settlement. Together, SAC’s civil and criminal penalties would total about $1.8 billion.
Mr. Cohen is still negotiating with the SEC to resolve a separate civil lawsuit regulators filed against him, seeking to ban him from the securities industry for allegedly ignoring signs of insider trading at his firm. The firm has previously said the suit against Mr. Cohen has no merit. It is unclear if regulators would agree to a resolution that would enable Mr. Cohen to return to managing outside capital.
In the near future, Mr. Cohen, whose firm managed $15 billion at the beginning of the year, is expected to turn SAC into a so-called family office, managing the $9 billion that belongs to him and employees.
SAC and Steven A. Cohen Over the Years
Who’s Who in the SAC Case
The announcement in July of criminal charges against SAC Capital Advisors marked the culmination of a yearslong probe that has produced criminal and civil cases against several individuals.
In the criminal indictment, prosecutors cited eight SAC traders or analysts, most of whom have left the firm, who have been charged with insider trading, in accusing the firm of fostering a culture in which traders and analysts were encouraged to obtain illegal stock tips. Six of the employees have pleaded guilty. Two have pleaded not guilty and are scheduled for trial in the coming months.
Prosecutors also filed a civil lawsuit seeking to seize SAC’s assets as a product of the alleged illegal activity.
Judges in both the criminal and civil cases would have to approve SAC’s settlement with prosecutors. Once the deal is approved, SAC is expected to plead guilty to securities-fraud charges—most likely at a later date—on the basis of some or all of the guilty pleas by its former employees. Companies can generally be held liable for criminal behavior by their employees.