MANHATTAN (CN) - Federal prosecutors today unsealed a five-count indictment accusing S.A.C. Capital Advisors of criminal responsibility for insider trading offenses committed by numerous employees."
The 41-page indictment charges S.A.C., one of the nation's largest hedge funds, and its wholly owned affiliates with wire fraud and four counts of securities fraud.
The indictment was unsealed five days after the SEC filed an administrative action against S.A.C. founder and principal Steven A. Cohen, charging him with failing to supervise employees who profited enormously from insider trading.
Though the indictment stops short of charging Cohen with criminal wrongdoing, it's the latest in a series of blows to his firm. In March, the hedge fund paid a record $616 million to settle two inside trading lawsuits filed by the Securities and Exchange Commission.
Cohen also has been sued by his ex-wife, Patricia, who claims he made a lot of money from inside trading and hid millions from her during their divorce.
Cohen's S.A.C. managed more than $15 billion at its peak, including about $8 billion of Cohen's own money, according to The New York Times. Forbes magazine estimates Cohen's net worth at $10 billion.
According to the grand-jury indictment, "institutional indifference" at S.A.C. Capital Advisors, S.A.C. Capital Advisors, CR Intrinsic Investors and Sigma Capital Management "resulted in insider trading that was substantial, pervasive and on a scale without known precedent in the hedge fund industry."
Prosecutors say the inside trading that occurred between 1999 and 2010 was "made possible by institutional practices that encouraged the widespread solicitation and use of illegal inside information."
"First, the S.A.C. entity defendants sought to hire S.A.C. [portfolio managers] and S.A.C. [research analysts] with proven access to public company contacts likely to possess inside information," the indictment states. "Second, the S.A.C. entity defendants' employees were financially incentivized to recommend to the S.A.C. owner 'high conviction' trading ideas in which the S.A.C. [portfolio managers] had an 'edge' over other investors, but repeatedly were not questioned when making trading recommendations that appeared to be based on inside information. Third, on numerous occasions, the S.A.C. entity defendants failed to employ effective compliance procedures or practices to prevent S.A.C. [portfolio managers] and S.A.C. [research analysts] from engaging in insider trading."
The indictment is one of two criminal indictments and two civil complaints filed or unsealed Thursday against S.A.C., its affiliates and a former employee.
In the second indictment, former S.A.C. portfolio manager Richard Lee is charged with securities fraud and conspiracy. He allegedly received, and traded on, inside information about Yahoo, from sources in that company. Based on inside tips about Yahoo earnings that he obtained on April 20, 2009, he sold 1.2 million shares of Yahoo from his portfolio the next day, the indictment states.
Lee is also accused of buying 700,000 shares of 3Com, also acting on inside information.
"At times the portfolio that Lee co-managed had a buying power of approximately $1.25 billion," the indictment states.