“Unlawful conduct by individual employees and an institutional indifference to that unlawful conduct resulted in insider trading that was substantial, pervasive and on a scale without known precedent in the hedge fund industry,” the indictment said.
The 41-page document paints a picture of a hedge fund where a constant pressure to gain an edge in trading led to the widespread use of inside information, resulting in hundreds of millions of dollars of illegal profits.
“SAC became over time a veritable magnet for market cheaters,” Preet Bharara, U.S. attorney for the Southern District of New York, said at a news conference Thursday.
The charges did not target the firm’s founder, Steven A. Cohen, although they do mark a new nadir for the billionaire’s career.
With a number of employees already convicted or charged with insider trading, investors have been pulling their money from the fund en masse. It’s likely that a large share of the money left over is Cohen’s own.
Bharara said the indictment does not seek to freeze any of SAC’s assets.
A spokesman for SAC Capital did not respond immediately to a request for comment Thursday morning.
Prosecutors say traders and analysts were hired in part for their network of contacts at public companies. For instance, one prospective employee who specialized in the industrial sector was described in a November 2008 e-mail as “the guy who knows the quarters cold, has a share house in the Hamptons with the CFO of [a Fortune 100 industrial sector company], tight with management.”
Time and again, the indictment alleges, the company failed to check whether the information being used was obtained legally.
Prosecutors say the firm was warned that a prospective employee at another hedge fund had been working in what was known informally as the “insider trading group.” According to the indictment, the candidate was hired anyway — over the objections of SAC’s legal department.
Cohen, the firm’s founder, is not named in the indictment, but references to him are made throughout the pages of charges and evidence, always as the “SAC Owner” who is constantly pressing his employees for tips and a “better edge” on trades.
In a wide-ranging series of insider trading investigations that has ensnared several other firms and dozens of people, SAC is the most ambitious target yet. The hedge fund and its billionaire founder are symbols of the greatest possible success that can be attained on Wall Street.
SAC, based in Stamford, Conn., at its peak managed $15 billion in assets. It charged its clients more than the industry standard and performed especially well when markets were down.