Published On: Fri, Apr 11th, 2014

US Federal Judge Approves $1.8 Billion Steven Cohen Insider Trading Settlement

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Yesterday a Federal Judge finally approved settlement of a criminal insider trading case against Steven Cohen’s SAC Capital, now known as Point 72 Asset Management, with the imposition of record fines.

One week ago, the U.S. Attorney in Manhattan Preet Bharara’s office made a 17 page filing to US District Court District Judge Laura Taylor Swain, asking her again to approve a settlement the Justice Department reached last November in the insider trading case.

Under the terms of the agreement Steven Cohen’s SAC Capital has plead guilty to the charges, will pay a fine of US$900 million and accept an additional civil forfeiture of US$900 million, for a total penalty of US$1.8 billion. The civil forfeiture amount is reduced to US$284 million due to payments made to the SEC in an earlier civil case

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.

Steven Cohen's new corporate logo
Last November Judge Swain had refused to rubber stamp the agreement, and in effect deferred her decision waiting for more detailed explanations as to why she should approve it.

Cases of this kind represent a morality tale; one of bared breasts and stern chastisements in a public forum. We don’t hang people in the presence of a cheering public audience for such offences any more, but yesterday there was a symbolic substitute, and one possibly more effective.

Accordingly, whilst she in the end did approve the settlement, Judge Swain was scathing of her criticisms of the actions of SAC Capital yesterday, saying “These crimes clearly were motivated by greed, and these breaches of the public trust require serious penalties, ” adding “The defendants’ crimes were striking in their magnitude and strikingly indicative of a lack of respect for the law.”

Judge Swain also approved the choice of former federal prosecutor Bart Schwartz as a compliance Monitor at SAC Capital, newly re-named Point 72 Asset Management, after first verifying that employment by a certain member of his family’s at Point 72 did not represent a conflict of interest.

Before yesterday’s hearing the lawyer for SAC had, as well, written to the Judge saying that “the defendants are deeply remorseful for the misconduct of each of the individuals who broke the law while employed by them. Even one person crossing the line into illegal behavior is unacceptable. The defendants are chastened by this experience, but are determined to learn from it.”

Then after it was over and the judgment announced, the US Attorney himself Preet Bharara, said, “Today marks the day of reckoning for a fund that was riddled with criminal conduct. SAC fostered pervasive insider trading and failed, as a company, to question or prevent it. Today’s sentence affirms that when institutions flout the law in such a colossal way, they will pay a heavy price.”

Steven Cohen himself is not facing any personal allegations of criminal wrongdoing at this point, and likely will not in the future either unless a previously undiscovered smoking gun should turn up, something prosecutors now seem resigned to – though they certainly tried hard.

However he still faces another civil SEC administrative action against him, this time for “failing to supervise” the eight of his employees who to date have indeed been found guilty of insider-trading. Whilst this could cost him still further moneys as another major fine, it may be a price he is content to pay.

Meanwhile Point 72 Asset Management now continues as a family office to manage his own money. Recently this was said in a filing to be as much as US$11 billion, rather more even than the US$9 billion he was earlier thought to still have left. Either way it is a huge sum, and one that should keep Steven Cohen busy enough in his new office.

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