The indictment charges that the hedge fund was guilty of both “unlawful conduct by individual employees and an institutional indifference to that unlawful conduct.”
The government alleges a pattern of insider trading that was “substantial, pervasive and on a scale without known precedent in the hedge fund industry.”
The indictment says the insider trading started in 1999, and that the firm hired research analysts and money managers specifically because they possessed insider information.
The insider trading resulted in “hundreds of millions” of dollars of illegal profits and “avoided losses” for the hedge fund, according to the indictment, which says the firm should forfeit all that money as part of its penalty.
SAC said that it “has never encouraged, promoted or tolerated insider trading and takes its compliance and management obligations seriously.”
“The handful of men who admit they broke the law does not reflect the honesty, integrity and character of the thousands of men and women who have worked at SAC over the past 21 years,” the firm said. “SAC will continue to operate as we work through these matters.”
The indictment follows a wide-ranging investigation that has already yielded charges against at least eight former SAC employees, six of whom have pleaded guilty.
Cohen himself has not been charged criminally, though the Securities and Exchange Commission announced civil charges against him last week, accusing him of failing to supervise employees who engaged in insider trading.When questioned about the lack of criminal charges against Cohen, U.S. Attorney PreetBharara said the investigation is ongoing, raising the possibility of future charges.
George Venizelos, the assistant director-in-charge of the New York office of the FBI, said SAC’s compliance department, which is supposed to catch wrongdoing, was “woefully inadequate.”
“To be blunt SAC….not only tolerated cheating, it encouraged it,” he said.
Investigators have been circling Cohen and SAC for years. The firm agreed in March to pay the SEC roughly $615 million in connection with alleged insider trading by employees including two portfolio managers, Mathew Martoma and Michael Steinberg.
Martoma and Steinberg have already been charged criminally and are awaiting trial. Both have pleaded not guilty.
Martoma is accused of selling and shorting shares of the pharmaceutical companies Elan and Wyeth based on inside information from drug trials that had not been publicized. The trades allegedly allowed SAC to generate profits and avoid losses worth $276 million in total.
Steinberg is accused of insider trading in Dell and Nvidia stock. An analyst who reported to Steinberg, Jon Horvath, has already pleaded guilty and is cooperating with prosecutors.
Daniel J. Kramer of Paul Weiss Rifkind is one of the most prominent securities lawyers in the country, sits on numerous SEC panels – and represents Cohen in this matter. Kramer has stated Cohen “didn’t do anything wrong.”