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Under the terms of the plea bargain SAC Capital agreed to pay a fine of US$900 million and accept an additional forfeiture of US$900 million, for a total penalty of US$1.8 billion.
The Judge in the case, in the New York Southern District Court, Judge Laura Taylor Swain, did not automatically accept the arrangement, saying she wanted to further consider herself whether it was indeed appropriate. In the mean time resolution of the case has been held up pending the trials of two of SAC employee’s, Mathew Martoma and Michael Steinberg, who have since been individually found guilty of insider trading in separate cases.
Steven Cohen himself has not been charged personally for engaging in any such insider trading practices.
Now next week, on April 10th, 2014, Judge Swain is scheduled to decide whether or not to accept the firm’s guilty plea and the deal it made with the US Justice Department.
Accordingly, the U.S. Attorney in Manhattan Preet Bharara’s office yesterday made a 17 page filing to the court asking U.S. District Judge Swain to approve the agreement as part of what is a record US$1.8 billion settlement. The agreement also calls for the hedge fund to close its investment advisory business and henceforth operate only as a family office for Steven Cohen’s own money, and his employees’ own money.
As he is thought to still have a personal fortune left of about US$9 billion, though the settlements themselves he has been making may put a crimp in this, so this will still be a major professional undertaking even with something of a scaled down level of staffing.
Assistant U.S. Attorney Antonia Apps wrote in the filing yesterday “This financial penalty … is an appropriate punishment for the criminal conduct at SAC Capital – where eight employees to date have been convicted of insider trading – and provides a strong message of deterrence to other institutions which may be engaging in illegal insider trading or failing to institute procedures designed to identify and prevent insider trading by its employees.”
As part of the settlement agreement SAC Capital Advisors, which next week also officially changes its name to Point72 Asset Management, reflecting its Connecticut address 72 Cummings Point Road in Stamford, agreed to substantially beef up its own compliance procedures to safeguard against future potential for insider trading by its staff.
However in Thursday’s filing by the State Attorney’s office we also learned that Bart M. Schwartz, a former federal prosecutor who has served as an independent Monitor in a number of government investigations, will become an outside, court appointed, Monitor of the new company if the Judge approves of the idea.
Federal prosecutors and lawyers for Mr. Cohen have themselves agreed to the selection of Mr. Schwartz. As the Chairman and CEO of Guidepost Solutions, a compliance and security firm based in New York, Mr. Schwartz has long experience in monitoring corporate compliance with government investigations, including a previous assignment to oversee compliance by giant international bank Deutsche Bank with provisions imposed on it relating to a tax shelter scheme that the Justice Department had said was not lawful.
Finally, SAC says itself in its own pre-sentencing memorandum to the Judge that it was “deeply remorseful.”
Provided the Judge Swain does now approve the recommendations of the Justice Department as outlined, this is likely good news for Steven Cohen personally. Until now he has faced the possibility of criminal charges also being laid against him personally if the prosecutors could find evidence of a smoking gun implicating him directly in some of these transactions in the meantime, something which they had not ruled out. Presumably if the settlement now proceeds, it means they have been unable to do so.
Finally, Cohen still faces a separate Securities and Exchange Commission administrative proceeding, based on civil allegations that as CEO he personally failed to properly supervise those of his employees who became involved with, and were then convicted of, criminal insider trading at the hedge fund.
After already earlier paying US$1.2 billion to the SAC in 2013, to settle similar civil charges relating to the same issues, word is that Cohen would like now to settle these too and put it all behind him
As to what’s in a name, news site Quartz has an intriguing idea, one that came to it from a finance Professor, suggesting the new name of the company Point72 might reflect more than just an address, but is also a double-entendre. In the patois of finance there is a shorthand trick known as the “Rule of 72” which says something like: “if you divide a known % yield into the number 72, you get the number of years it takes to double your investment.”
With so much going down recently, when SAC Capital went as far as changing their corporate name to re-brand the company, I doubt they were being that cute, but it sure makes a good story. And regularly doubling his investors’ money is something Steven Cohen has been very good indeed at in the past, even without insider trading. Now he will have to be content with doing it just for himself – perhaps the best punishment of all…