SAC: federal grand jury indicts hedge fund for insider trading

Federal grand jury indictment alleges that SAC maintained elite group that has traded on insider information since 1999

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A federal grand jury has indicted SAC Capital, the embattled hedge fund that has been pursued by financial authorities for years, for insider trading after regulators failed to charge its powerful founder, Steven A Cohen.

The US attorney who brought the charges, Preet Bharara, also hit the firm with civil money-laundering charges that would require the firm to forfeit potentially billions of dollars in assets.

A 41-page indictment alleges that SAC, founded in 1992, maintained an elite group that has traded on insider information since 1999.

SAC is also alleged to have hired portfolio managers specifically for their insider contact in the industries in which they traded, and failed to raise red flags when insider information was suggested as the basis for a trade.

The indictment marks the culmination of a six-year investigation by Bharara. The government pursued an investigation against Cohen but apparently dropped its attempt to bring charges last month.

"SAC became, over time, a veritable magnet for market cheaters," Bharara said at a news conference in Manhattan. "That's why the institution, and not individuals, stand accused of insider trading." He said that the charges were "a predictable product of pervasive institutional failure", and added: "A company reaps what it sows. SAC seeded itself with corrupt traders."

Cohen was not mentioned by name in the indictment but referred to obliquely  as "the SAC owner" and an "individual residing in Greenwich, Connecticut."

"The SAC owner failed to question candidates who implied that their 'edge' was based on sources of inside information," the indictment says. Later, it notes: "The SAC owner fostered a culture that focused on not discussing inside information too openly, rather than not seeking or trading on such information in the first place."

The government's case centers on SAC's culture. It alleges that employees at SAC "engaged in a pattern of obtaining inside information from dozens of publicly-traded companies across multiple industry sectors. Employees ... traded on inside information themselves and, at times, recommended trades to the SAC owner based on inside information."

Under US securities laws, fund managers may only trade on company information that has been publicly disclosed.

The indictment mentions several other SAC employees as well as employees of affiliate investment firms. One portfolio manager for Cohen-controlled Sigma Capital, Wes Wang, is cited in connection with insider trading in eight technology stocks including Taiwan Semiconductor, Cisco, and eBay. In 2012, Wang pleaded guilty to two counts of conspiracy to commit securities fraud. ...