The once highflying hedge fund SAC Capital Advisors was sentenced on criminal fraud charges Thursday under a $1.8-billion deal that prosecutors say included the largest criminal fine ever imposed in an insider-trading case.
U.S. District Judge Laura Taylor Swain in Manhattan formally administered the sentence on Stamford, Conn., company SAC Capital and three related entities based on pleas last fall by the companies to wire fraud and securities fraud.
"These crimes clearly were motivated by greed," Swain said.
The judge said nearly $400 million earned illegally by one of the companies was a "staggering amount," reflecting a corrupt corporate culture.
In a statement, U.S. Atty. Preet Bharara said, "Today marks the day of reckoning for a fund that was riddled with criminal conduct."
The government said most money managed by the defendants from 1999 through 2010 belonged to the hedge fund's billionaire owner and founder, Steven A. Cohen. It noted eight employees were convicted of insider trading.
Assistant U.S. Atty. Antonia Apps told Swain that the $900-million fine levied under the deal was believed to be "the largest fine imposed in an insider-trading case in history." In court papers, prosecutors called it an appropriate punishment that sends a "strong message of deterrence" to potential insider traders.
Representing the companies, longtime SAC General Counsel Peter Nussbaum told Swain the companies "accept responsibility for the misconduct of our employees."
At the sentencing's outset, drug maker Elan Corp. announced it had settled its $1.5-million claim against SAC for costs related to the investigation. Some insider-trading secrets involved a potential breakthrough Alzheimer's drug trial that Elan co-sponsored.
Cohen, of Greenwich, Conn., is one of the highest-profile figures in American finance and one of America's richest men. He is among the few hedge fund managers on Wall Street who pull in about $1 billion a year in compensation.
The deal between SAC and the government did not resolve a civil case that the Securities and Exchange Commission brought last July against him. He was accused of failing to prevent insider trading at the company, which he founded in 1992 and which bears his initials. Cohen has disputed the SEC's allegations. He has not been charged criminally.
The government brought the charges after concluding that numerous SAC portfolio managers and research analysts engaged in insider trading in at least 20 publicly traded stocks. It said the illicit trading was "substantial, pervasive and on a scale without known precedent in the hedge fund industry."
Of the roughly $15 billion in assets that SAC Capital managed last year before the charges were made public, about half belonged to Cohen and his employees and half was client money.
As part of the agreement, the companies were required to close their investment advisory businesses, leaving the companies to mostly trade Cohen's fortune, though attorney Martin Klotz told the judge that some illiquid investments involving relatively modest amounts of money might take 18 months or more to close.