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From Securities Regulation Daily, April 10, 2014

Court accepts SAC Capital guilty plea; imposes $900-million criminal fine

By Matthew Garza, J.D.

Judge Swain of the Southern District of New York accepted a guilty plea entered by SAC Capital Advisers (SAC) in response to insider trading charges today. The court imposed a $900-million criminal fine, a maximum five-year term of probation for four SAC hedge funds, and required SAC to end its investment advisory business. The grand jury’s five-count indictment, returned July 23, 2013, included one wire fraud charge and four securities fraud charges against SAC and the four affiliated funds. SAC, now called Point72 Asset Management, is also required to retain an independent compliance monitor to oversee and report on the company’s compliance procedures as part of the plea agreement.

The government said the firm relentlessly pursued an information “edge” over its competitors that eventually overwhelmed SAC’s limited compliance systems. The company fostered a business culture that failed to ensure that their advantage came from legitimate research, and not inside information, the government charged.

U.S. Attorney Preet Bharara said that together with the $900-million settlement of the civil forfeiture action, approved on November 6, 2013, SAC will pay a $1.2-billion financial penalty, including the $616 million it agreed to pay to the SEC. Bharara said that the total criminal fine exceeded a range set by sentencing guidelines, and neither the fine nor the payment amount from the civil forfeiture case can be claimed as a tax deduction or credit by the SAC Companies or owner Steven Cohen. “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,” said Bharara.

Actions against employees. Numerous SAC employees have been targeted in insider trading actions, including portfolio manager Matthew Martoma, who was indicted by a grand jury in December 2012 on three counts of insider trading in the stock of pharmaceutical companies Elan Corp. and Wyeth. A Manhattan jury convicted Martoma on February 6, 2014. After a five-week jury trial, portfolio manager Michael Steinberg was convicted on December 18, 2013, of insider trading in the stocks of Dell, Inc., and NVIDIA Corp. An SEC administrative action still pending against Cohen charges him with failure to supervise Martoma, Steinberg, Jon Horvath, a research analyst who reported to Steinberg, and two other fund managers.

On Tuesday, the court ordered counsel for the government and SAC to appear today to discuss the sentencing. The court specified that it would focus on the investigative conclusions as to the actual profits and avoided losses experienced by the funds, and whether those conclusions took into account the activities of all culpable persons at the firm, or only the activities of the eight identified employees.

SAC at its peak held over $15 billion of assets under management, the majority of which belonged to Cohen. SAC’s original plea expressed deep remorse for the actions of its employees and said the firm was paying a steep price for their actions, both in terms of the amounts payable, the damage done to the business, and the damaged reputations of the people at the firm.

Companies: S.A.C. Capital Advisors, L.P.; S.A.C. Capital Advisors LLC; CR Intrinsic Investors LLC; Sigma Capital Management, LLC; Elan Corp.; Wyeth Pharmaceuticals Inc.; Point72 Asset Management; Dell, Inc.; NVIDIA Corp.

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