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Trustee’s hedge fund settles with prosecutors

Steven Cohen’s P’08 P’16 firm paid a record-breaking sum and pled guilty to insider-trading

SAC Capital Advisors L.P., the once-powerful hedge fund created and owned by Corporation Trustee Steven A. Cohen P’08 P’16, has reached a nearly $1.2 billion settlement with federal prosecutors, pleading guilty on five charges of insider trading, the U.S. Attorney for the Southern District of New York announced Monday.

The guilty plea marks the first instance that SAC has admitted sustained wrongdoing, as well as the first time in decades that a firm of its size has confessed criminality. The hedge fund already paid out $616 million in separate settlements this summer, and the total $1.8 billion in plea deals sets the record for insider-trading charges, the New York Times reported.

University administrators have repeatedly declined in the past to comment on the proceedings or whether they might affect Cohen’s role on the Corporation, beyond Chancellor Thomas Tisch ’76 saying in a statement in March that “there has been no pressure on Steve — or the Corporation — for him to leave his seat.”

Marisa Quinn, vice president for public affairs and University relations, wrote Monday evening in an email to The Herald that she had nothing further to add.

The securities fraud counts against the firm encompassed insider trading charges against eight SAC employees whose alleged misdeeds occurred from 1999 to 2010. Six of those employees have pled guilty, including Richard S. Lee ’01, while two remain pending trial.

Along with the fine and plea, SAC will be on probation for five years and will be barred from managing outside client assets. The latter condition will have minimal impact, as most outside investors pulled their funds from SAC during the escalating federal investigation over the past year.

Instead, SAC is expected to downsize to manage Cohen’s personal funds, which still total about $9 billion. At its peak, the firm managed about $15 billion.

“We take responsibility for the handful of men who pleaded guilty and whose conduct gave rise to SAC’s liability,” SAC spokesman Jonathan Gasthalter wrote in a statement emailed to The Herald. “The tiny fraction of wrongdoers does not represent the 3,000 honest men and women who have worked at the firm during the past 21 years. SAC has never encouraged, promoted or tolerated insider trading.”

A civil suit remains outstanding against Cohen, filed this summer by the Securities and Exchange Commission on charges of “failing to supervise” his employees accused of insider trading. Potential penalties from that action could include permanently banning Cohen from managing outside money anywhere.

And the threat of further criminal action still looms: The Times reported that he and others remain under investigation. Prosecutors have had trouble in the past connecting Cohen directly to insider trading schemes or proving he had knowledge of their existence.

Under the deal announced Monday, SAC would have to add a government-approved compliance monitor to ensure no further violations if it wants to continue taking part in the securities trade, the Financial Post reported.

The hedge fund’s guilty plea caps several years of federal efforts to crack down on improper trading on Wall Street, of which SAC has been at the center.

Before insider-trading charges began swirling around the company, SAC had been known as one of the greatest success stories on Wall Street. Over the past two decades, its average annual returns have approached 30 percent, the Times reported.

Despite Monday’s deal, SAC will likely remain in business as a family office. Its assets were not frozen, and prosecutors voiced their support for other firms to continue doing business with SAC.


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