Government Charges SAC In Insider Trading Case

Federal prosecutors have filed criminal charges against one of the most famous and successful hedge funds in the world. The government alleges that SAC Capital Advisors is criminally responsible for insider trading that went on at the firm.

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RENEE MONTAGNE, HOST:

Federal prosecutors have filed criminal charges against one of the most famous and successful hedge funds in the world. The government alleges that SAC Capital Advisors is criminally responsible for insider trading that went on at the firm. At its peak, SAC managed $15 billion, and historically earned very high returns for investors. The name SAC is actually the initials the firm's founder, Steven Cohen. He is not being charged personally, though he's facing separate civil charges from regulators.

We're joined now by NPR's Chris Arnold. And Chris, first, what exactly is the government alleging, here?

CHRIS ARNOLD, BYLINE: Well, we're just getting the indictment itself, and it says that SAC, the company has, quote, "criminal responsibility for insider trading offenses committed by numerous employees, and made possible by institutional practices that encouraged the widespread solicitation and use of illegal inside information." So that's kind of a mouthful, but in other words, the government's saying here that it's not like there were one or two rogue traders or portfolio managers who were sneaking around at the company and doing some illegal stuff. What they're alleging is that the entire culture of the hedge fund was built around encouraging employees to get a hold of non-public information, and then to use that illegally to help the hedge fund make money.

MONTAGNE: Prosecutors are saying there was a scheme, here. What exactly is that?

ARNOLD: OK. So the complaint says that this guy Cohen had a system where he incentivized his staff to bring him ideas to trade on, where the firm would have, quote, "an edge over other investors." Vague language there, but when they brought in ideas that should have been suspected - according to the prosecutors - of being inside information, nobody ever asked any questions. So it was this culture of euphemism and looking the other way that allowed insider trading to go on.

MONTAGNE: And do you have a sense of what sort of information that we're talking about?

ARNOLD: Well, some of this is like a Hollywood movie about insider trading. In one case, there was this Alzheimer's drug that looked promising, but then an SAC portfolio manager found out that the drug trials weren't going well, and that allegedly wasn't public information. So to trade on that would be illegal. Of course, that's super-powerful information. There's hundreds of millions of dollars always involved in these drug trials. And allegedly, SAC then sold stock in related companies and made trades ahead of the rest of the market. So they profited tremendously by having this information. That's just one example. There's also a case involving Dell computer stock. And there are, again, just many, many people at the firm named in lots of these cases. So this appears, according to the government, to have been pretty widespread.

MONTAGNE: What does this mean for Steven Cohen, the founder? Big, big deal he was on Wall Street, and also this huge firm.

ARNOLD: Well, we should stress, so far, it doesn't look like he's going to go to jail. He's not named in the complaints, although the "owner," quote-unquote, is all over the indictment. You know, if he doesn't go to jail, though, no firm has ever survived criminal charges. So what this is going to mean is that everybody else's money is going to leave the firm. He'll have his own several billion dollars left behind that he can invest himself. But it'll likely mean that Cohen won't be managing money anymore for other people.

MONTAGNE: NPR's Chris Arnold on the news that criminal charges have been brought against SAC Capital Advisors. Thanks very much.

ARNOLD: Thanks, Renee.

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