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SAC Capital pleads guilty in insider trading case

The plea by hedge fund SAC Capital comes as part of a deal with the government in which it also would pay a $1.8 billion to settle insider trading charges.

November 08, 2013|Times wire services
  • Sandeep Aggarwal, left, a former research analyst, leaves federal court with his attorney Steven Kobre in New York after admitting he passed inside information about a deal involving Yahoo and Microsoft to a former SAC Capital fund manager.
Sandeep Aggarwal, left, a former research analyst, leaves federal court… (Victor J. Blue, Bloomberg )

SAC Capital Advisors pleaded guilty to criminal fraud charges Friday, satisfying a deal with the government that requires the Connecticut hedge fund to pay a record $1.8 billion to settle charges that it allowed, if not encouraged, insider trading to occur for more than a decade.

The plea came in U.S. District Court in New York four days after the government announced that the once-influential hedge fund owned by billionaire Steven A. Cohen had reached the deal that also required it to shut down its operations to outside investors.

But Judge Laura Taylor Swain did not immediately accept the plea, saying she'd wait until a probation report is made and other papers are submitted for her review. She set a sentencing date for March 14, assuming she accepts it.

The plea was entered by Peter Nussbaum, SAC's longtime general counsel, to a single count of wire fraud and four counts of securities fraud. It was made on behalf of SAC Capital, SAC Capital Advisors, CR Intrinsic Investors and Sigma Capital Management.

In pleading guilty, Nussbaum said SAC Capital wanted to "express our deep remorse for the misconduct of each individual who broke the law while employed at SAC."

"This happened on our watch, and we are responsible for that misconduct," he said.

Prosecutor Arlo Devlin-Brown said the crimes were "not limited to the conduct of these six individuals. Additional people engaged in insider trading."

Devlin-Brown cited "institutional failure," saying the firm hired individuals with proven access to insiders at public companies and failed to effectively monitor its employees even when their actions should have served notice that they may be based on inside information.

He said that a tone was set by senior management at the company that allowed insider trading to occur and that prosecutors would have proven so at trial through the use of witnesses, recorded conversations, trading records and other documents.

"Between 1999 and 2010, numerous portfolio managers and analysts engaged in insider trading in at least 20 public companies," the assistant U.S. attorney said. He also said the company encouraged its employees to "aggressively pursue" an edge in information, regardless of "whether that edge was lawfully obtained."

The plea does not stop the government from continuing a criminal investigation that already has led to charges against at least eight former SAC employees. Most have pleaded guilty.

Cohen is not among those criminally charged, although the Securities and Exchange Commission accused him in a civil action in July of failing to prevent insider trading at the company, which he founded in 1992 and which bears his initials. The SEC sought to fine Cohen and bar him from managing investor funds. Cohen has disputed the allegations.

Earlier Friday, a former California technology analyst pleaded guilty to insider trading charges in a cooperation deal with the government, admitting that he told secrets to an SAC Capital portfolio manager and others in 2009 about a blockbuster deal between Microsoft Corp. and Yahoo Inc.

Sandeep Aggarwal, 40, entered the plea to conspiracy and securities fraud charges, telling U.S. Magistrate Judge Ronald L. Ellis that he passed along tips he learned from a former colleague at Microsoft about plans the company had to create a search engine advertising partnership with Yahoo.

The plea settled charges brought against Aggarwal when he was arrested in July in San Jose.

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