Settlement negotiations are apparently underway between SAC Capital and federal prosecutors. The Wall Street Journal’s Michael Rothfeld, Jenney Strasburg and Susan Pulliam report that sources say the hedge fund could pay as much as $2 billion to settle insider trading charges brought against it earlier this year.
Prosecutors meet with SAC Capital
The sources said prosecutors proposed a range of $1.5 billion to $2 billion for a settlement of the charges. However, at the meeting last week, lawyers for SAC Capital said the amount should be lower. They also claim that a $616 million regulatory fine the firm paid earlier this year in the related civil case should be subtracted from the criminal sanction.
In August, Mohnish Pabrai took part in Brown University's Value Investing Speaker Series, answering a series of questions from students. Q3 2021 hedge fund letters, conferences and more One of the topics he covered was the issue of finding cheap equities, a process the value investor has plenty of experience with. Cheap Stocks In the Read More
Over the next few weeks, the firm’s lawyers are expected to make a counter offer to federal prosecutors with a new amount. However, the sources said the negotiations are still in the early stages. At this point a deal between SAC and prosecutors would likely require the firm to plead guilty to insider trading charges. It is unclear if Steven Cohen, the hedge fund’s founder, will face individual criminal charges in the case.
SAC Capital indicted
SAC was indicted by federal prosecutors in New York on July 25. They accused the firm of insider trading “on a scale without known precedent.” U.S. officials filed a separate but related civil action against the firm in an attempt to force it to forfeit its $10 billion in assets.
Cohen has told employees at his firm that he will work to keep their jobs safe and keep the firm running as it normally would. He has also told friends and colleagues that he is trying to settle the criminal charges in a way that would keep the firm open and running, even just as a so-called “family office” which would manage only his assets. The Wall Street Journal notes that no major financial firm in the U.S. has ever made it through a criminal indictment.
Cohen faces action from regulators
On July 19, Cohen himself faced a civil proceeding from the Securities and Exchange Commission for not doing enough to prevent insider trading from occurring at SAC. The agency tried to ban Cohen from the financial industry for life and make sure that he never managed money owned by outside investors ever again.
That civil action is now on hold until the criminal matter regarding SAC Capital is taken care of. It is believed that the firm would attempt to seek both the civil and criminal cases at the same time.