SAC Capital: Firm Criminal Liability, Civil Fines, and the Insulated CEO

Abstract

Since 2009, the business pages of many major newspapers have been rife with stories about insider trading. The name most often in the headline of these stories is Preet Bharara, U.S Attorney for the Southern District of New York.' Since taking on the job of fighting insider trading on a large scale, he boasts a 78-1 record for convictions. However, one man has evaded that scorecard even though his company and several employees have earned criminal and civil convictions.

S.A.C. Capital Advisors, L.P. ("SAC") was once a $14-billion hedge fund with one of Wall Street's best records for performance. Steven A. Cohen, the owner and namesake of SAC, was the subject of admiring profiles in everything from the New York Times4 to Vanity Fair. 5 He was once number thirty-six on Forbes' list of richest Americans worth an approximated $11 billion;6 Mr. Cohen was called "the king of hedge funds." Mr. Cohen received attention for his art collection (valued at $1 billion) and his thirty-room mansion in Connecticut.8 However, as his wealth and successes increased, there was attention building and many questioned, "How does he do it?"

The two questions that swirled around SAC were: (1) How did the hedge fund outperform every other fund?; and (2) Why were so many current and former SAC traders being indicted, convicted, or entering guilty pleas for insider trading?

As a result of these questions, the Financial Industry Regulatory Authority ("FINRA") began making referrals to the United States Securities and Exchange Commission ("SEC") in 2010 for possible insider trading by SAC. In July 2013, the Department of Justice ("DOJ") filed a criminal indictment against SAC Capital.

Keywords: SAC, Preet Bharara, Financial Industry Regulatory Authority, FINRA, SEC, Securities and Exchange Commission, DOJ, Department of Justice, SAC Capital Advisors, Insider Trading