Key Takeaways
- • Federal grand jury indicts SAC Capital on insider trading charges after a six-year investigation by U.S. Attorney Preet Bharara, culminating in a 41-page indictment alleging systematic insider trading since 1999—notably without charging founder Steven A. Cohen individually.
- • SAC faces civil money-laundering charges requiring potential forfeiture of billions in assets, in addition to criminal securities fraud and wire fraud counts related to insider trading by numerous employees spanning more than a decade.
- • Indictment alleges institutional culture of compliance failure, with SAC accused of deliberately hiring portfolio managers for their insider contacts, fostering a culture focused on discretion rather than prevention, and failing to question candidates whose "edge" derived from inside information.
- • Bharara characterizes case as institutional rather than individual accountability, stating "SAC became a veritable magnet for market cheaters" and calling the charges "a predictable product of pervasive institutional failure"—marking a strategic shift in enforcement against the hedge fund industry's culture.
- • Prior settlement history: SAC has already paid $616 million to settle civil charges without admitting wrongdoing, and several former portfolio managers including Mathew Martoma have been convicted or pled guilty to related offenses.
Summary
A federal grand jury has indicted SAC Capital Advisors on insider trading charges, representing the culmination of a six-year investigation by U.S. Attorney Preet Bharara into one of Wall Street's most prominent hedge funds. The 41-page indictment alleges that SAC, founded in 1992, maintained a systematic practice of trading on insider information spanning from 1999 through at least 2012, involving numerous employees across multiple portfolio management teams.
Notably, the government pursued charges against the institution rather than its founder, Steven A. Cohen, after apparently abandoning attempts to bring individual criminal charges against him last month. Cohen is referenced obliquely in the indictment as "the SAC owner" and an "individual residing in Greenwich, Connecticut." The indictment alleges that Cohen failed to question job candidates who implied their trading "edge" was based on inside information sources and that he fostered a corporate culture emphasizing discretion in discussing such information rather than preventing its use altogether.
The criminal charges include one count of wire fraud and four counts of securities fraud. Concurrently, U.S. Attorney Bharara filed civil money-laundering charges that would require SAC to forfeit potentially billions of dollars in assets. At a Manhattan news conference, Bharara characterized the case as an indictment of institutional culture, stating: "SAC became, over time, a veritable magnet for market cheaters" and describing the charges as "a predictable product of pervasive institutional failure." He emphasized that "a company reaps what it sows."
The indictment alleges that SAC specifically hired portfolio managers based on their insider contacts within the industries they traded, deliberately sought insider information as a basis for investment decisions, and systematized a failure to raise compliance red flags when such information was suggested as the foundation for trades. This represents a strategic prosecutorial approach focusing on systemic institutional accountability rather than individual trader culpability alone.
SAC has previously settled civil insider trading charges for $616 million without admitting wrongdoing. Several of the firm's former portfolio managers, including Mathew Martoma, have been separately convicted or pled guilty to securities fraud and conspiracy charges related to insider trading activities at the fund.
Notably, the government pursued charges against the institution rather than its founder, Steven A. Cohen, after apparently abandoning attempts to bring individual criminal charges against him last month. Cohen is referenced obliquely in the indictment as "the SAC owner" and an "individual residing in Greenwich, Connecticut." The indictment alleges that Cohen failed to question job candidates who implied their trading "edge" was based on inside information sources and that he fostered a corporate culture emphasizing discretion in discussing such information rather than preventing its use altogether.
The criminal charges include one count of wire fraud and four counts of securities fraud. Concurrently, U.S. Attorney Bharara filed civil money-laundering charges that would require SAC to forfeit potentially billions of dollars in assets. At a Manhattan news conference, Bharara characterized the case as an indictment of institutional culture, stating: "SAC became, over time, a veritable magnet for market cheaters" and describing the charges as "a predictable product of pervasive institutional failure." He emphasized that "a company reaps what it sows."
The indictment alleges that SAC specifically hired portfolio managers based on their insider contacts within the industries they traded, deliberately sought insider information as a basis for investment decisions, and systematized a failure to raise compliance red flags when such information was suggested as the foundation for trades. This represents a strategic prosecutorial approach focusing on systemic institutional accountability rather than individual trader culpability alone.
SAC has previously settled civil insider trading charges for $616 million without admitting wrongdoing. Several of the firm's former portfolio managers, including Mathew Martoma, have been separately convicted or pled guilty to securities fraud and conspiracy charges related to insider trading activities at the fund.
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