SAC Capital Advisors and the Securities and Exchange Commission have agreed in principle to what would be the largest ever settlement for insider trading, ranging from $1.2 billion to $1.4 billion, reports Michael Rothfeld and Juliet Chung for The Wall Street Journal. When a previously agreed upon $616 million settlement for civil insider trading charges is included, the firm will have to pay nearly $2 billion. SAC Capital, run by Steven A. Cohen, has not admitted any wrongdoing as part of the civil settlement and neither settlement would prevent the criminal investigations that are looking into Cohen’s trades. There are currently no charges against Cohne personally, though that could certainly change in the future.
The deal still has to be approved by a federal judge and some details haven’t been ironed out yet. SAC Capital and Cohen, even if he goes to another firm, will almost certainly be banned from managing outside capital for some amount of time, but exactly how long is still being negotiated.
SAC Capital is facing something of a deadline
But SAC Capital is facing something of a deadline, because the insider trading trial of former SAC portfolio manager Michael Steinberg is set to begin November 18, and the current agreement is only valid until that trial begins. If terms aren’t sorted out by then, SAC could find itself paying even more than the current historically high amount. It seems unthinkable that such a large case could actually go to trial itself, but if SAC Capital can’t make an agreement now, it could happen.
FBI has been trying to fight back against insider trading
The FBI has been trying to fight back against insider trading in recent years, partially under pressure to tackle abuses in the financial system in the fallout from the financial crisis. While much of what went wrong then was legal, getting convictions on insider trading is certainly good for the agency’s image, and they have managed to get 75 convictions or guilty pleas since 2009. To land such a big settlement now would be a significant achievement, but it would also send a message that the cost of insider trading is going up. For unethical companies or traders who are more concerned with profits than compliance, losing a few billion dollars could change the calculation a bit.