QUICK FACTS
Overview
On November 4, 2013, the U.S. Department of Justice announced a global resolution with four S.A.C. Capital-affiliated entities (the "SAC Entity Defendants") to resolve criminal and civil charges of insider trading. The agreement requires the entities to plead guilty to all charges of securities and wire fraud, pay a total financial penalty of $1.8 billion, and terminate their investment advisory businesses.
The resolution addresses what the government described as a systematic insider trading scheme that occurred over more than a decade. The total penalty is composed of a $900 million criminal fine and a separate $900 million civil forfeiture.
Details of the CASE
The legal filings allege that for over a decade, from approximately 1999 through 2010, misconduct was widespread. Employees and agents of the SAC Entity Defendants obtained material, non-public information ("Inside Information") related to publicly traded companies.
They then executed trades based on this Inside Information on behalf of the SAC entities, using capital from the various SAC-managed investment funds. The government filings state these illicit profits were then commingled with other assets in the investment funds to promote further insider trading.
The plea agreement quantifies the financial gains from these activities for each entity as part of the U.S. Sentencing Guidelines calculations:
- CR Intrinsic Investors, LLC: This entity was responsible for the largest portion of the illicit gains.
- According to the plea agreement, the estimated profits and avoided losses from insider trading offenses attributed to this entity were more than $200,000,000 but less than $400,000,000.
- This gain resulted in a base fine calculation of $275,000,000 for this entity alone, before other sentencing factors were applied.
- S.A.C. Capital Advisors, L.P.; S.A.C. Capital Advisors, LLC; and Sigma Capital Management, LLC: The plea agreement groups these three entities as having a similar, though still substantial, scale of financial gains from their respective offenses.
- For each of these three entities, the estimated profits and avoided losses from insider trading were calculated to be more than $7,000,000 but less than $20,000,000.
- This resulted in a base fine calculation of $6,300,000 for each of these three entities.
fines and Penalties
The total financial penalty is $1.8 billion, which the agreement stipulates is the largest in history for insider trading offenses.
Key quotes
- "The aggregate $1.8 billion financial penalty is -- to the Government's knowledge -- the largest financial penalty in history for insider trading offenses."
- "...any entity owned or controlled by the owners of the SAC Entity Defendants that is involved in the trading of securities will be required to employ compliance procedures to prevent insider trading that have been reviewed and revised to the satisfaction of an independent compliance consultant approved by the Government."
- "This Agreement provides no immunity from prosecution to any individual and shall not restrict the ability of the Office to charge any individual for any criminal offense and seek the maximum term of imprisonment applicable to any such violation of criminal law."
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