SAC Capital Advisors, one of the most successful hedge funds in the U.S. in the last 20 years, pleaded guilty to charges of insider trading and will pay a fine of $1.8 billion, a record penalty for this type of offense.
The fund controlled by billionaire Steven A. Cohen recorded in the last 20 years an annual average return of 25% and the portfolio managed by Cohen never posted yearly losses. Based on this performance, Cohen can be considered the best stock trader in history, with an unusual ability to predict the evolution of stock prices.
SAC pleaded guilty under an agreement with representatives of the Department of Justice and will have to pay $1.8 billion in fines and will have to give up part of illicitly acquired gains. Also, the fund is not allowed to manage money and assets to investors outside the firm. After it was indicted in July, the fund has repeatedly denied all accusations.
“SAC focused on hiring the best talent, talent who was equipped with extensive networks to circumvent traditional lines of communication,” said April Brooks, FBI special agent.
Stephen A. Cohen’s wealth is estimated by Bloomberg Billionaires Index at $9 billion. For him, the blow to his reputation is more punishment than the financial penalty decided by the authorities, according to his friends and colleagues. At its heyday in 2007, SAC controlled assets of $16.5 billion.
Cohen is “obsessed to win” on the golf course or on the stock exchange, and his aim has always been to be recognized as a world-class investor in the same league with names like Warren Buffett or George Soros, said sources close to the billionaire.
The $1.8 billion fine includes a fine of $616 million ordered in March by the U.S. Securities and Exchange Commission, which filed a civil action against the fund. U.S. Attorney Preet Bharara said the investigation into the activities of the SAC continues and the agreement with the fund does not imply immunity for any person involved. The 57-year-old Cohen has not been indicted and he maintains his innocence.
SAC said in a statement that it takes “responsibility for the handful of men who pleaded guilty and whose conduct gave rise to SAC’s liability. These wrongdoers do not represent the 3,000 honest men and women who have worked at the firm during the past 21 years. Even one person crossing the line into illegal behavior is too many and we greatly regret this conduct occurred.”
Cohen was the main target of the authorities, but the law enforcement could not link him to the crimes. Since 2009, 87 people were indicted in this case, of which 75 have been convicted. Among them, a former member of the board of directors at Goldman Sachs, a former IBM executive, lawyers and even a doctor. At least four multibillion-dollar hedge funds have been closed as a result of the probe.
Cohen, who once described the law on insider trading “very vague” will be subject to administrative sanctions by the U.S. Securities Commission because he failed to fulfill the tasks of monitoring the activities of the fund he runs.
Despite its high yields, which raised many questions on Wall Street, SAC came to the attention of authorities in 2006 during the investigation of fraud and insider trading activities at the Galleon fund, which concluded with billionaire Raj Rajaratnam sentencing to 11 years in prison.
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