Fine Against Hedge Fund for Insider Trading is Largest in History, While Individual Traders Face Possible Jail Time

11_Wall_Street.jpgA New York hedge fund pleaded guilty to insider trading late last year, and the penalty reportedly includes the largest fine for insider trading in history. SAC Capital must pay a total penalty of $1.8 billion and cease any involvement in the investment advisory business. The settlement does not prevent criminal charges against individual employees. The government, through the U.S. Attorney’s office and the Securities and Exchange Commission (SEC), has brought both criminal and civil complaints against the company and multiple individuals as part of its broader investigation. Six SAC employees pleaded guilty to insider trading in early 2013, and two fought the charges. One of them, Michael Steinberg, was convicted in December 2013, and Mathew Martoma’s trial began in January 2014. The SEC filed a civil complaint against the head of the hedge fund, Steven A. Cohen, last year, but Cohen has not faced criminal liability.

A series of trades attracted the attention of the FBI in 2008. An analyst working under Steinberg claimed that Steinberg instructed him sometime in late 2007 to find nonpublic information they could use in trading. Steinberg denied that any such conversation ever took place. The government would charge that Steinberg, based on information from the analyst that the computer company Dell expected to have a disappointing third quarter in 2008, acquired a short position of $3 million in the company’s stock. They learned that Cohen, their boss, had a long position, which would cause him to lose money. Shortly before Dell’s earnings announcement, Cohen allegedly sold his entire long position. The matter in dispute is whether he sold based on nonpublic information obtained from Steinberg, or public information. Martoma allegedly made similarly suspicious transactions of stock in the pharmaceutical companies Elan and Wyeth in 2008.

These and other transactions were part of the government’s criminal case against SAC Capital, filed in July 2013 in the U.S. District Court for the Southern District of New York. The indictment alleged that the company recruited analysts based on their access to insiders with nonpublic information, and that it encouraged traders to make profits using such nonpublic information. The company had already settled a civil insider trading case in March 2013 for $616 million. The government credited that amount against the $1.8 billion penalty when the company pleaded guilty to all of the charged insider trading counts. That penalty consists of a $900 million criminal fine and a $900 million civil forfeiture judgment, according to the U.S. Attorney’s office. The company is barred from the investment advisory business, but may still manage Cohen’s estimated $8 billion fund.

A federal jury convicted Steinberg of four counts of securities fraud and one count of conspiracy to commit securities fraud in December 2013. Each securities fraud count carries a maximum prison sentence of twenty years. He is still awaiting sentencing, but it is not likely that the court will impose the maximum. Martoma’s trial began in early January 2014. He also faces counts of securities fraud and conspiracy. Cohen has avoided criminal charges, but the SEC filed a civil complaint against him in July 2013 for failure to supervise Steinberg and Martoma.

If you are facing a charge for an alleged offense, an experienced criminal defense attorney can help you understand and protect your rights, while preparing the best possible defense for you. Criminal defense attorney Michael J. Brown has fought for west Texas defendants for over twenty years. Please contact us today online or at (432) 687-5157 to schedule a confidential consultation to discuss your case.

More Blog Posts:

Manager of Mortgage Finance Company Convicted in Federal Court of 28 Counts of Fraud, Texas Criminal Lawyer Blog, October 23, 2013
SEC Uses Facebook to Identify Insider Trading Suspect’s Alleged Source, Texas Criminal Lawyer Blog, June 26, 2013
President Obama Signs Law That Could Make Congressmen Guilty of Insider Trading, Texas Criminal Lawyer Blog, April 9, 2012
Photo credit: By Arun De Joe (Own work) [CC-BY-SA-3.0], via Wikimedia Commons.