S.A.C Capital Advisors was a group of private hedge funds founded by Steven A. Cohen in 1992. In 2010, the Securities and Exchange Commission (SEC) conducted an insider trading investigation on the SAC. Two years later, several former employees of SAC were prosecuted by the U.S. Department of Justice. In November of 2013, the firm pleaded guilty towards the insider trading complaint, and paid $1.2 billion for penalties. After returning the majority capital to its outside investors, the firm shrunk soon and turned to be defunct in 2016. Key players of this scheme included the owner of the firm (Steven A. Cohen), the firm’s portfolio managers, and several other former employees of SAC Capital LP, SAC Capital LLC，CR. Intrinsic, and Sigma Capital, which were affiliated corporate entities under the SAC Capital Advisors.
In July 2013, the SEC filed a complaint against SAC Capital Advisors to the United States District Court. As alleged in the Complaint, the insider-trading scheme led by the SAC defendants committed through the conspiracy of numerous portfolio managers and research analysts. They obtained Inside Information form many other publicly traded companies in a range of sectors. Moreover, employees of the SAC defendants also traded Inside Information themselves and recommended “promising” trades to the SAC investors according to the Inside Information. Specifically, the SAC Capital Advisors first specially hire portfolio managers and research assistants that had access to public companies’ Inside Information. Furthermore, the SAC defendants encouraged their employees to recommend SAC owners with ideal trades, in which the SAC portfolio managers had edges over other investors. Then, the SAC defendants find it impossible to prevent SAC portfolio managers and research assistant from engaging in insider trading, because the financial encouragement provided by the SAC Capital Advisors in obtaining and making use of Inside Information of other public traded companies overwhelmed the limited compliance system in SAC. The enlarged ambition made the SAC cultivated a business culture of aggressively obtaining Inside Information form other companies and paying no attention to ensure that employees acquiring information through legitimate approaches. As a result, the SAC Capital Advisors was alleged five counts for its insider trading offenses, which had resulted in substantial, diffusive, and largest insider trading in history.
The five courts were specifically targeted on the SAC Capital Advisors, the SAC Capital LP, the SAC Capital LLC, the CR Intrinsic, and Singma Capital, as they had intended, wither directly or indirectly, engaged in manipulation and fraud in securities exchanges and business. Their actions violated Title 15, United States Code, Sections 78 j(b) & 78ff, Title 17, Code of Federal Regulations, Section 240. 10b – 5 & 240. 10b5 – 2, and Title 18, United States Code, Section 2.
In November 2013, the SAC companies pleaded guilty for all the five courts in the indictment, accepted a $ 1.8 billion financial penalty, which was the largest penalty for insider trading causes in history. Given that this case involved more than 75 defendants, which was a large number in terms with an organizational crime. By recognized that individual guilt was not the most significant purpose of the legal system, therefore, institutions that engaged in a criminal action should also be held accountable later. FBI will strengthen its investigation into insider trading as well.
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