U.S. prosecutors are preparing criminal charges against SAC Capital, the $15-billion (U.S.) hedge fund run by Steve Cohen that is the subject of an insider trading investigation, according to a person familiar with the matter.
The criminal charges, which could be announced in the next several days, would be the most significant action against SAC since prosecutors and agents with the Federal Bureau of Investigation and the Securities and Exchange Commission began looking at the firm nearly a decade ago.
A number of individuals may also face criminal charges, but not Mr Cohen himself, the person said.
The timing of the criminal charges could be delayed if SAC were to strike a deal, but there were no apparent signs of any talks, according to a second person familiar with the matter.
The charges are expected to encompass a broad range of conduct that is already the subject of criminal cases against former SAC portfolio managers and analysts, the first person said.
Eight former SAC employees have been charged with insider trading, and all but two have pleaded guilty.
SAC declined to comment. Representatives with the FBI and U.S. attorney’s office in Manhattan, which is investigating the criminal case, also declined to comment or could not be reached.
SAC and its subsidiaries Sigma and CR Intrinsic are 100-per-cent own by Mr. Cohen.
Indictments against financial institutions are rarely sought because of the broader collateral damage. Prosecutors have been hesitant since the Department of Justice indicted Arthur Andersen in 2002 in connection with the collapse of Enron. The case was later overturned by the Supreme Court but about 20,000 people were laid off and Arthur Andersen lost business before the trial was complete.
The probe into alleged insider trading at SAC gained momentum last November when prosecutors filed criminal charges against Mathew Martoma, a former portfolio manager. They alleged that he sold shares in drug companies Wyeth and Elan based on non-public information that indicated results of a clinical trial would be disappointing.
Mr. Martoma allegedly spoke for 20 minutes with Mr. Cohen, who directed his traders to begin selling the entire position the following day. Mr. Martoma has denied any wrongdoing. The allegation was the first direct link to Mr Cohen, who has swatted away controversy for years.
Following the charges some investors grew wary of keeping money with SAC, which has generated enviable returns since its launch in 1992. So far investors have withdrawn roughly $5-billion from the fund. Over $9-billion of the money under management belongs to Mr Cohen or firm employees.
In an effort to soothe employees and investors, SAC earlier this year paid $616-million to settle civil insider trading charges with the SEC, without admitting or denying wrongdoing.
But the investigation has continued and on Friday, as the five-year statute of limitations was about to be triggered for some drug company trades, the SEC filed an administrative action against Mr. Cohen, saying he failed to properly supervise Mr. Martoma and Michael Steinberg, a long-time portfolio manager, both of whom reported directly to Mr. Cohen.
Mr. Steinberg was charged by prosecutors in March with trading in advance of Dell’s 2008 quarterly earnings. Mr. Steinberg has denied any wrongdoing.
Mr. Cohen has denied any wrongdoing in the SEC action.
On Tuesday, SAC sent a 46-page document to its staff hitting back at each of the SEC’s allegations.