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SAC Capital Indicted on Five Counts of Insider Trading

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By Gabriella Khorasanee, JD on July 29, 2013 3:58 PM

Two weeks ago, the SEC filed a civil action against SAC Capital Advisors LP (SAC) founder Steven Cohen. A week later, the U.S. Attorney for the Southern District of New York, Preet Bharara, indicted SAC on five counts of criminal charges for wire fraud and securities fraud, stemming from alleged insider trading.

As expected, SAC plead not guilty to all charges.

It seems that there isn't enough evidence to indict Cohen on personal criminal charges, but if the claims are successful, these actions will hit him where it will hurt -- his wallet.

Federal prosecutors called SAC "a veritable magnet of market cheaters,"according to The New York Times. The New Yorker reports a prosecutor in Bharara's office, Antonia Apps, told the court there was "a tremendous volume of evidence" against the firm, including court-authorized wiretaps, emails, and instant messages.

The indictment describes SAC's actions in no uncertain terms: "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 history."

The Times reports that it's likely that six SAC traders will testify against SAC stating that their unlawful actions were "on behalf of and for the benefit of" SAC. Normally, the next step would be to offer SAC a deferred-prosecution agreement which would effectively "suspend an indictment so long as the company improves its behavior." The government did not choose that approach with SAC because of its global presence with five offices worldwide.

The indictment against SAC will not be easy to prove. With criminal charges, the government has a much higher burden of proof. The SEC's civil action against Steven Cohen, accusing him with failure to properly supervise his traders, may be easier to prove given the lower burden the government must establish.

Either way, Steven Cohen stands to lose billions of dollars. Until we know more about the kind of evidence the government has, it's all speculation. We do know that several of his traders have plead guilty to insider trading, so those facts alone may be very persuasive in proving that Cohen did not properly supervise his traders.

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