Hedge Funds Plead Guilty To Insider Trading With Historic Penalty And Five-Year Probation

A major plea agreement in the Southern District of New York, which imposed the largest insider trading penalty in history, indicates federal prosecutors aim to follow through on long-standing promises of cracking down on insider trading by demonstrating the high price to be paid by corporate offenders targeted for indictment.

On November 4, 2013, SAC Capital Advisors LP (SAC Capital LP), SAC Capital Advisors LLC (SAC Capital LLC), CR Intrinsic Investors LLC (CR Intrinsic) and Sigma Capital Management LLC (Sigma Capital) (collectively the SAC companies) entered into a plea agreement, pleading guilty to all counts of a July 2013 indictment charging the SAC companies with securities fraud and wire fraud in connection with an insider trading scheme pursuant to 18 U.S.C. § 1343 and 17 C.F.R. § 240.10b-5, 240.10b-5(2). The agreement also includes a historic penalty amount of $1.8 billion and five years of probation, and prohibits the companies from engaging in any operations as investment providers.

Background

The SAC companies managed a group of affiliated hedge funds. According to the indictment, the SAC companies' employees obtained and traded on material, non-public information and/or recommended trades based upon that information to portfolio managers or the SAC owner. The indictment charged wide-scale insider trading offenses committed by employees from 1999 through 2010 involving the securities of more than 20 publicly traded companies across numerous industries. The indictment alleged that the SAC companies engaged in systematic insider trading that was a predictable and foreseeable result of multiple institutional failures. These failures, according to the indictment, included hiring practices heavily focused on recruiting employees with networks of public company insiders, SAC management not questioning employees about trades that appeared to be based on inside information and ineffective compliance measures that did not prevent or detect such trading, particularly prior to late 2009. The case was brought by the U.S. Attorney for the Southern District of New York, in coordination with President Obama's Financial Fraud Enforcement Task Force.

The Plea Agreement and Forfeiture Stipulation

The SAC companies pleaded guilty to the July 23, 2013, indictment, which charged them with multiple counts of securities fraud based upon systemic insider trading and wire fraud relating to the criminal insider trading scheme. Under the terms of the plea...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT