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Major Wall Street firm to plead guilty in insider-trading case

November 04, 2013|By Andrew Tangel

NEW YORK -- A giant Wall Street hedge fund has agreed to plead guilty in a major insider-trading case.

The federal government's agreement with SAC Capital Advisors, the Connecticut-based fund run by billionaire Steven A. Cohen, is set to be announced at a news conference Monday by Preet Bharara, the U.S. attorney in Manhattan.

Bharara's office announced an indictment of SAC Capital in July, a rare criminal prosecution of a financial firm. Under the agreement, SAC Capital will pay $1.8 billion in penalties, according to court documents.

That would mark the largest-ever penalty in an insider-trading case, said John Coffee, a securities law professor at Columbia University. SAC Capital would get credit for $616 million it paid to the U.S. Securities and Exchange Commission to resolve a civil insider-trading case.

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The plea deal, which would require a federal judge's approval, also would prevent SAC Capital funds from managing outside investors' money. That may leave only Cohen's fortune to manage.

“He’s going to happily play the market on his own with $7 [billion] or $8 billion," Coffee said. "There are worse fates. He won’t starve.”

But the deal won't resolve all of SAC Capital's legal troubles -- or Cohen's. Criminal cases against two former portfolio managers are continuing in New York.

And while the criminal case against SAC Capital did not target Cohen, the SEC is trying to prevent Cohen himself from managing outside investors' money.

The plea deal unveiled Monday also requires new compliance procedures to be approved by a government-appointed consultant. The agreement provides no immunity from prosecution.

When the government announced its indictment in the summer, SAC Capital defended itself against accusations that it fostered a culture of cheating.

"SAC has never encouraged, promoted or tolerated insider-trading and takes its compliance and management obligations seriously," a spokesman said then. "The handful of men who admit they broke the law does not reflect the honesty, integrity and character of the thousands of men and women who have worked at SAC over the past 21 years. SAC will continue to operate as we work through these matters."

A SAC spokesman did not immediately return a request for comment.

Cohen, a major art collector, is member of the Museum of Contemporary Art's board. He made an unsuccessful bid to buy the Los Angeles Dodgers.

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