US hedge fund SAC Capital has reached an agreement to plead guilty to criminal insider trading charges, in a move that will likely end the trading career of its founder Steve Cohen and potentially see the fund transformed into a family office.
Prosecutors announced on Monday that the firm, headquartered in Connecticut, faced $1.2 billion in fines for the charges, in addition to a $616 million settlement with the US Securities and Exchange Commission (SEC).
The Federal Bureau of Investigation (FBI) has said the deal comes as a warning to those on Wall St who believe unfettered “greed is good” – a philosophy famously espoused by the fictional character Gordon Gekko in the film Wall Street.
Cohen has not personally been charged with any crime and it is expected he will manage his own wealth, thought to be approximately $9 billion, through a single family office, once the hedge fund’s plea deal is approved by two judges – a process that could take weeks – and outsider funds have been returned.
SAC is thought to have once managed $15 billion, but since the criminal investigation began heating up earlier this year billions of dollars have been returned to pensions, wealthy individuals and other investors.
In a statement released on Monday afternoon, SAC said it took responsibility for the “handful of men who pleaded guilty” and said they “do not represent the 3,000 honest men and women who have worked at the firm during the past 21 years".
The agreement does not preclude future criminal charges against former and existing SAC employees, according to a letter filed in the US District Court by prosecutors.
Regarded by some as one of the top traders of his era, Cohen – who established SAC in 1992 with $25 million – charged investors a reported 3% management fee plus 50% on annual returns, where typically hedge funds charge 2% management fees and 20-30% on returns.
Since the passing of the Dodd-Frank Act, which clamped down on the financial services sector in the aftermath of the 2008 global financial crisis, several large hedge funds have transitioned into family offices.
George Soros’ Soros Fund Management closed in 2011, and Millbrook Capital Management, which became a family office for its founder, John Dyson, closed last year – however, unlike SAC Capital, neither had been investigated for breaking federal laws.