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U.S. files criminal fraud charges against SAC

Federal prosecutors unveiled criminal charges yesterday against SAC Capital, the famed hedge fund, citing “institutional practices” that encouraged a culture of using inside information to gain illegal profits.

The government charged SAC Capital with wire fraud and four counts of securities fraud. The indictment cites activity that spanned more than a decade from roughly 1999 to 2010, saying employees at the hedge fund engaged in a “pattern” of collecting nonpublic information about dozens of publicly traded companies.

“Unlawful conduct by individual employees and an institutional indifference to that unlawful conduct resulted in insider trading that was substantial, pervasive and on a scale without known precedent in the hedge fund industry,” said the indictment.

The 41-page document paints a picture of a hedge fund where a constant pressure to gain an edge in trading led to the widespread use of inside information, resulting in hundreds of millions of dollars of illegal profits.

“SAC became over time a veritable magnet for market cheaters,” said Preet Bharara, U.S. attorney for the Southern District of New York at a press conference yesterday.

The charges did not target the firm’s founder, Steven Cohen, although they do mark a new nadir for the billionaire’s career.

With a number of employees already convicted or charged with insidertrading, investors have been pulling out their money from the fund en masse. It’s likely that a large share of the money leftover now is Cohen’s own.

Bharara said the indictment does not seek to freeze any of SAC’s assets.

A spokesman for SAC Capital did not respond immediately to a request for comment yesterday.

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