OUT OF BUSINESS: Hedge fund manager Steven A. Cohen, founder and chairman of SAC Capital Advisors, responds to a question during an interview in Las Vegas in this file photo. — Reuters photo
NEW YORK: Steven A. Cohen faces an abrupt end to his career as one of the world’s most successful traders after his SAC Capital Advisors became the largest Wall Street firm in years to agree to plead guilty to criminal charges of insider trading, and pay US$1.2 billion in fines.
But Cohen, a multi-billionaire and renowned modern art collector, has not been personally charged with any crime and will likely continue managing some US$9 billion of his own money through a lightly regulated family office once the hedge fund’s plea deal is approved by the courts.
The winding down of the hedge fund’s advisory business, which began returning billions of dollars to investors earlier this year as a criminal investigation heated up, requires SAC to install an independent compliance monitor if it continues to trade in the near term, something that will be a big change for Cohen who is known to be a micro-manager.
SAC’s guilty plea and fine, announced by prosecutors on Monday, is in addition to a US$616 million settlement with the US Securities and Exchange Commission.
Manhattan US Attorney Preet Bharara said at a press conference that the plea deal sends a message to Wall Street that no “institution is too big to jail.”
He rejected criticism that the plea is something of a disappointment because Cohen himself was not charged with any criminal wrongdoing.
“What happened is a very substantial and important thing,” said Bharara. “It is a rare thing for an entity to be held to account.”
Cohen’s fund, which once employed more than 900 people with offices on three continents, will no longer manage money for outside investors including pensions, endowments and wealthy individuals, according to the settlement.
Jonathan Gasthalter, a spokesman for SAC Capital, said the firm is taking “responsibility for the handful of men who pleaded guilty” to insider trading while working at the hedge fund. But he added the firm has “never encouraged, promoted or tolerated insider trading.”
April Brooks, special agent in charge of the Federal Bureau of Investigation’s New York field office, said the case is a warning to those on Wall Street who aspire to the creed that unfettered “greed is good,” as famously espoused by the character Gordon Gekko in the movie “Wall Street.”
The guilty plea, which needs to be approved by two judges, coincides with SAC Capital posting solid performance and far outperforming other hedge funds despite the taint of scandal. The fund is up 1.3 per cent in October and up 15.95 per cent so far this year, a source familiar with its performance said, compared to an almost 6 per cent gain for the average fund.
Legal observers said it could be days or even weeks before the settlement is approved, giving SAC Capital and prosecutors more time to choose a compliance monitor.
It also may give more time to the big Wall Street banks likes Goldman Sachs Group Inc and JPMorgan Chase that lend money to SAC Capital and earn hundreds of millions of dollars a year in trading commissions to decide if they will continue doing business with Cohen firm once it reconstitutes as a family office. — Reuters