NEW YORK — SAC Capital, one of Wall Street's largest and most profitable hedge funds, has been indicted criminal charges by a Manhattan grand jury that weighed evidence of insider trading-related allegations.
SAC Capital founder Steven Cohen was not charged individually, but the indictment charged his Connecticut-based hedge fund and its affiliates with wire fraud and four counts of securities fraud, allegations that could cripple the fund.
An SAC portfolio manager previously pleaded guilty in the years-long investigation, the Manhattan U.S. Attorney's office said, as prosecutors unsealed his plea.
The charges represent the hardest yet in a series of major legal blows for Cohen, who runs the fund and uses it as an investment and trading vehicle for billions of his own money.
Prosecutors said the indictment charged that a decade-long insider trading scheme at SAC Capitol "was on a scale without known precedent in the hedge fund industry."
Manhattan U.S. Attorney Preet Bharara scheduled a 1 p.m. news conference to discuss the case.
An SAC Capital spokesman could not immediately be reached for comment. But the company last week said the company and Cohen had done nothing wrong.
The indictment could speed a recent outflow of investors from SAC Capital, though the company earlier this week sent employees a notice that it planned to continue normal operations.
Stuart Slotnick, a New York City defense lawyer who's not involved in the case, said "there's a great likelihood they (SAC Capital) will continue to lose investors" as a result of the government action.
"But don't forget, there are billions of dollars of (Cohen's) personal money in the fund," said Slotnick. "And what may result, at least in the short term, is that the business turns into a family fund, a family business that has employees, has a corporate structure and continues."
The widely anticipated criminal charges come after SAC Capital and CR Intrinsic, another Cohen affiliate, earlier this year agreed to pay the Securities and Exchange Commission a record $615 million in penalties to resolve civil insider trading charges against the firms.
Additionally, the SEC on July 19 filed civil administrative charges against Cohen himself, alleging that he "failed reasonably to supervise" two senior portfolio managers who themselves have been been hit with insider trading charges and are awaiting trial.
The civil case fell short of accusing Cohen, a hedge fund giant and one of the nation's richest people, with similar insider trading allegations. But an SEC victory could bar him from handling investor funds, a penalty that could force him to shut down portfolios that until recently investor withdrawals totaled more than $15 billion.
In the civil case, the SEC alleged that Cohen received "highly suspicious" non-public information in 2008 from top financial lieutenants Mathew Martoma and Michael Steinberg, who have pleaded not guilty in their cases. The allegations involved stock trading in pharmaceutical firms Elan and Wyeth, as well as in computer giant Dell.
Instead of heeding his supervisory responsibility to investigate, the SEC charged that Cohen "ignored red flags" and allowed trading on the information to proceed, thereby earning profits and avoiding losses totaling more than $275 million.
Disputing the charges, attorneys for Cohen have said he "had every reason to believe" that one of the portfolio managers relied only on public information and that the hedge fund founder didn't read a crucial email sent by the other manager.
"Steven Cohen did nothing wrong, and any fair review of the evidence will show that the SEC's charges are unfounded," his lawyers said.
The civil case against Cohen is scheduled to begin with an Aug. 26 hearing before SEC Chief Administrative Law Judge Brenda Murray.
John Coffee, a Columbia University law school professor expert in securities law last week said it's relatively rare for the SEC to bring such a case as an administrative proceeding, rather than in federal court.
The move potentially gives the SEC "home court advantage," said Coffee, because the rules of evidence are somewhat less strict than in federal court and could enable the agency to introduce more hearsay evidence.
SAC Capital founder Steven Cohen was not charged individually, but the indictment charged his Connecticut-based hedge fund and its affiliates with wire fraud and four counts of securities fraud, allegations that could cripple the fund.
An SAC portfolio manager previously pleaded guilty in the years-long investigation, the Manhattan U.S. Attorney's office said, as prosecutors unsealed his plea.
The charges represent the hardest yet in a series of major legal blows for Cohen, who runs the fund and uses it as an investment and trading vehicle for billions of his own money.
Prosecutors said the indictment charged that a decade-long insider trading scheme at SAC Capitol "was on a scale without known precedent in the hedge fund industry."
Manhattan U.S. Attorney Preet Bharara scheduled a 1 p.m. news conference to discuss the case.
An SAC Capital spokesman could not immediately be reached for comment. But the company last week said the company and Cohen had done nothing wrong.
The indictment could speed a recent outflow of investors from SAC Capital, though the company earlier this week sent employees a notice that it planned to continue normal operations.
Stuart Slotnick, a New York City defense lawyer who's not involved in the case, said "there's a great likelihood they (SAC Capital) will continue to lose investors" as a result of the government action.
"But don't forget, there are billions of dollars of (Cohen's) personal money in the fund," said Slotnick. "And what may result, at least in the short term, is that the business turns into a family fund, a family business that has employees, has a corporate structure and continues."
The widely anticipated criminal charges come after SAC Capital and CR Intrinsic, another Cohen affiliate, earlier this year agreed to pay the Securities and Exchange Commission a record $615 million in penalties to resolve civil insider trading charges against the firms.
Additionally, the SEC on July 19 filed civil administrative charges against Cohen himself, alleging that he "failed reasonably to supervise" two senior portfolio managers who themselves have been been hit with insider trading charges and are awaiting trial.
The civil case fell short of accusing Cohen, a hedge fund giant and one of the nation's richest people, with similar insider trading allegations. But an SEC victory could bar him from handling investor funds, a penalty that could force him to shut down portfolios that until recently investor withdrawals totaled more than $15 billion.
In the civil case, the SEC alleged that Cohen received "highly suspicious" non-public information in 2008 from top financial lieutenants Mathew Martoma and Michael Steinberg, who have pleaded not guilty in their cases. The allegations involved stock trading in pharmaceutical firms Elan and Wyeth, as well as in computer giant Dell.
Instead of heeding his supervisory responsibility to investigate, the SEC charged that Cohen "ignored red flags" and allowed trading on the information to proceed, thereby earning profits and avoiding losses totaling more than $275 million.
Disputing the charges, attorneys for Cohen have said he "had every reason to believe" that one of the portfolio managers relied only on public information and that the hedge fund founder didn't read a crucial email sent by the other manager.
"Steven Cohen did nothing wrong, and any fair review of the evidence will show that the SEC's charges are unfounded," his lawyers said.
The civil case against Cohen is scheduled to begin with an Aug. 26 hearing before SEC Chief Administrative Law Judge Brenda Murray.
John Coffee, a Columbia University law school professor expert in securities law last week said it's relatively rare for the SEC to bring such a case as an administrative proceeding, rather than in federal court.
The move potentially gives the SEC "home court advantage," said Coffee, because the rules of evidence are somewhat less strict than in federal court and could enable the agency to introduce more hearsay evidence.