Two weeks ago, the SEC filed a civil action against SAC Capital Advisors LP (SAC) founder Steven Cohen. A week later, the U.S. Attorney for the Southern District of New York, Preet Bharara, indicted SAC on five counts of criminal charges for wire fraud and securities fraud, stemming from alleged insider trading.

The indictment describes SAC’s actions in no uncertain terms: “Unlawful conduct by individual employees and an institutional indifference to that unlawful conduct resulted in insider trading that was substantial, pervasive and on a scale without known precedent in the hedge fund history.”

The Times reports that it’s likely that six SAC traders will testify against SAC stating that their unlawful actions were “on behalf of and for the benefit of” SAC. Normally, the next step would be to offer SAC a deferred-prosecution agreement which would effectively “suspend an indictment so long as the company improves its behavior.” The government did not choose that approach with SAC because of its global presence with five offices worldwide.

The indictment against SAC will not be easy to prove. With criminal charges, the government has a much higher burden of proof. The SEC’s civil action against Steven Cohen, accusing him with failure to properly supervise his traders, may be easier to prove given the lower burden the government must establish.

Either way, Steven Cohen stands to lose billions of dollars. Until we know more about the kind of evidence the government has, it’s all speculation. We do know that several of his traders have plead guilty to insider trading, so those facts alone may be very persuasive in proving that Cohen did not properly supervise his traders.

Related Resources:

  • Lawyer Receives Longest Insider Trading Sentence, 3rd Cir Affirms (FindLaw’s U.S. Third Circuit Blog)
  • Global Industries Sale Marred by Insider Trading: SEC (FindLaw’s In House Blog)
  • Greedy Associate’s 12-Year Sentence for Insider Trading Upheld (FindLaw’s Greedy Associates Blog)

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