NEW YORK, April 8 A U.S. judge on Tuesday raised a series of questions about a proposed $1.2 billion insider trading accord with billionaire Steven Cohen's investment firm, formerly known as SAC Capital Advisors, in advance of its sentencing on Thursday.
U.S. District Judge Laura Taylor Swain in Manhattan issued an order directing the parties to address how to calculate the proposed penalty and the qualifications of a newly appointed compliance consultant.
The judge also asked if the government's conclusions about SAC Capital's profits and avoided losses take into account activities by "all culpable persons" or just the eight employees already convicted on insider trading charges.
The order came ahead of a hearing Thursday in which Swain is expected to weigh whether to accept SAC Capital's November guilty plea to fraud charges and approve a fine of $900 million, part of a $1.2 billion deal unveiled last year.
The sentencing is expected to mark the end of an era for SAC Capital, which on Monday officially rebranded itself Point72 Asset Management as it shifted toward being a so-called family office managing mostly Cohen's own fortune, estimated by Forbes recently at $11.1 billion.
An indictment unveiled in July alleged a culture of systemic insider trading from 1999 through 2010, when employees at SAC Capital engaged in insider trading in the stocks of more than 20 publicly-traded companies.
Eight current or former SAC Capital employees have been convicted on insider trading charges. The firm itself entered a guilty plea in November to five counts of wire fraud.
Cohen has not been criminally charged, but faces an SEC administrative action seeking to bar him from the securities industry for failing to supervise two employees and prevent insider trading. He denies wrongdoing.
The $900 million criminal penalty Swain is being asked to consider would come on top of another $900 million judgment approved in November by a different judge in a related civil forfeiture case.
The civil judgment gives SAC Capital credit for $616 million in earlier insider trading settlements with the U.S. Securities and Exchange Commission, leaving an additional $1.2 billion in penalties as part of the criminal accord.
While the civil portion has already been approved, SAC Capital has the right to withdraw both its guilty plea and its agreement to pay in the forfeiture action if Swain does not sign
off on the $900 million in penalties.
In her order Tuesday, Swain asked about the qualifications of Bart Schwartz, a former federal prosecutor tapped to serve as a compliance consultant to SAC Capital as part of the deal, and what steps the government took in deciding whether to approve him.
She asked whether the compliance consultant's responsibilities would be limited to reviewing SAC's policies and procedures or if the job would also entail looking at how they are implemented.
The judge also asked if an "upward departure" was warranted under part of the federal sentencing guidelines that specifies a harsher punishment may be warranted if a company failed to have an effective compliance and ethics program.
The $900 million is already above the $411.5 million to $822.9 million recommended by the federal sentencing guidelines, according to a court filing by the government last week.
Representatives for Manhattan U.S. Attorney Preet Bharara and for Point72 declined comment. Schwartz did not immediately respond to a request for comment.
The case is U.S. v. SAC Capital Advisors LP, U.S. District Court, Southern District of New York, No. 13-00541. (Editing by Eric Walsh)