A six-year insider trading investigation against SAC Capital Advisors LP has come to end, according to a recent plea agreement. The hedge fund has agreed to a guilty plea in the securities fraud lawsuit brought by federal prosecutors and agreed to pay a $1.2 billion criminal penalty. This recent penalty comes on the heels of a $616 million civil penalty that SAC agreed to pay earlier this year to settle insider-trading charges brought against SAC by the SEC. Notwithstanding the enormous penalties, SAC founder, Steven A. Cohen, will remain a multi-billionaire. In this instance, it appears that crime, in the form of securities fraud, does, indeed, pay.
SAC, which was founded by Mr. Cohen, has been in operation since 1992 and manages a group of hedge funds estimated at $15 billion. However, prosecutors claim that the fraud began within several years after the firm’s founding, perhaps as early as 1999.
In some ways, a hedge fund is akin to a mutual fund, as it serves as an investment vehicle within which other investments are pursued. The individual securities in which a hedge fund invests can ran the gamut from stocks, bonds, commodities, structured products, principal-backed notes, derivatives, and even private placements. Unlike a mutual fund, however, a hedge fund may be able to deny an investor’s request to withdraw his or her money from the fund.
Hedge funds often are marketed as safe investment options, or perhaps as a “hedge” against losses. but investors do not have control over the investments pursued by the hedge fund manager. In some cases, a hedge fund might expose investors to unreasonable risks. In fact, investors might not learn of a risky investment strategy until they are forced to deal with its consequences, generally in the form of investment losses.
A securities fraud attorney might have insight into whether a hedge fund’s strategies were unreasonable, possibly rising to the level of hedge fund fraud. An attorney may be able to advise whether certain conduct violated applicable securities laws or the general fiduciary duty owed by stockbrokers and brokerage firms to their clients.
Source: bloomberg.com, “SAC to Plead Guilty to Securities Fraud, CNBC Reports,” Joe Schneider, Nov. 3, 2013