DOJ's decision on criminal charges against SAC Capital nears

NEW YORK, July 24 Wed Jul 24, 2013 1:53pm EDT

NEW YORK, July 24 (Reuters) - Federal prosecutors who have investigated hedge fund titan Steven A. Cohen for years on allegations of insider trading have decided they do not have enough evidence to get him, so they are going after his company instead.

The Manhattan U.S. Attorney's office is nearing a decision about filing criminal charges against Cohen's $15 billion SAC Capital Advisors hedge fund, said a person familiar with the matter.

But there is no indication authorities will charge Cohen with any criminal wrongdoing.

A spokeswoman for Manhattan U.S. Attorney Preet Bharara declined to comment as did a spokesman for the Federal Bureau of Investigation.

A spokesman for SAC Capital also declined to comment.

The Wall Street Journal reported that prosecutors are planning to charge SAC Capital with criminal wrongdoing as soon as this week.

Federal prosecutors have debated filing a criminal charge against Cohen's 21-year-old hedge fund, one of the industry's most successful, for many months. The fund is one of the largest payers of commissions on Wall Street, generating more than $300 million a year in trading fees alone for Wall Street brokerages.

It is unclear exactly what the nature of the criminal charges against SAC Capital would be and what illegal activities authorities are focusing on.

Federal authorities have been investigating the fund and its founder on and off for about a decade. But the bulk of the investigation has centered around stock trading at SAC Capital from 2006 through 2008.

The filing of a criminal charge against SAC Capital could be a death-knell for the Stamford, Conn.-based firm that employs nearly 1,000 people and made billions for the 57-year-old Cohen. It is likely that Wall Street firms that lend money and trade with SAC Capital would stop doing so after a criminal charge is filed.

But several legal experts, including former federal prosecutors, said the decision to charge the hedge fund, but not Cohen, with wrongdoing would be a tacit admission that the nearly seven-year investigation failed to find sufficient evidence of trading on illicit inside information by Cohen.

Several legal experts said there are risks in charging SAC Capital, but not its founder, as Cohen is so integral to its day-to-day operations. In fact, more than $8 billion of the money invested by SAC Capital belongs to Cohen and his employees.

"It's part of an overall level of frustration about this whole enterprise, and so they're trying to come at it from every possible angle to destroy this guy's business," said C. Evan Stewart, a defense lawyer and a partner Zuckerman Spaeder. "When the government gets an individual or company in its sights and decides that person's not worth doing business, it's going to use every tool."

If prosecutors do criminally charge SAC Capital, it will come after the U.S. Securities and Exchange Commission similarly decided it did not have sufficient evidence to file civil fraud charges against Cohen.

Instead, the SEC on July 19 filed an administrative order against Cohen charging him with failing to supervise his employees and spotting potential "red flags" involving allegations of insider trading by two of his employees.

An SAC spokesman said on Friday Cohen will vigorously defend the failure to supervise charge. A 46-page "white paper" prepared by SAC Capital's lawyer says Cohen is often too busy to read emails and never saw an email that regulators contend included a reference to inside information about computer company Dell Inc.'s earnings in summer 2008.

Federal authorities began looking into the possibility of filing a criminal charge against SAC Capital after former portfolio manager Jon Horvath pleaded guilty to passing on inside information about Dell during the summer of 2008 to his supervisor Michael Steinberg and traders at other hedge funds.

Earlier this year, prosecutors charged Steinberg with insider trading involving shares of Dell. Steinberg has pleaded not guilty.

To date, nine former and current SAC Capital employees have been implicated in wrongful trading while at the firm.

For now, Wall Street appears to be shrugging at news reports that federal prosecutors are getting closer to filing criminal charges against SAC Capital.

Wall Street firms are continuing to trade with the fund as usual, according to several market sources.

A headhunter said in the past several weeks she had gotten more resumes from employees of SAC Capital, but "not a flood" of resumes.