NEW YORK (Reuters) - Steven A. Cohen is going to have a government minder as he winds down his SAC Capital Advisors hedge fund after it agreed on Monday to plead guilty in a nearly decade-long insider trading investigation.
The provision for a compliance consultant, highlighted by prosecutors on Monday in announcing a proposed $1.2 billion settlement and guilty plea, marked the latest instance of what has become a growing trend of the U.S. Department of Justice requiring companies to retain outside monitors as part of settlements.
The consultant, who has yet to be named, could have an impact on how the future SAC conducts itself in hiring and training as it reviews the firm’s procedures to protect against insider trading.
An independent monitor also will be a big change for Cohen, the 57-year-old billionaire who has a reputation for being a micro-manager and maintaining tight control over the firm he founded 21 years ago with just $25 million.
“The department is saying in effect, it’s not enough for the company to pay a big fine, they’ve got to change their ways,” said Gregory Wallance, a former prosecutor now with the law firm Kaye Scholer.
Tapping monitors to oversee affairs at companies that ran afoul of the law became an increasingly common tool for the Justice Department about a decade ago as prosecutors sought to ensure compliance and cut down on violations in the wake of corporate scandals at Enron Corp and WorldCom Inc.
Monitors in particular were a frequent feature of so-called deferred prosecution agreements and non-prosecution agreements, which came into vogue after the indictment and conviction of Arthur Andersen resulted in the firm’s collapse and thousands of lost jobs.
Last year alone, the Justice Department required 12 companies to hire monitors as part of either deferred or non-prosecution agreements, according to data collected by the law firm Gibson Dunn & Crutcher.
Among those companies was Standard Chartered PLC; Science Applications International Corporation and HSBC Holdings PLC.
In SAC’s case, the firm is pleading guilty, a rare step that Manhattan U.S. Attorney Preet Bharara said reflected his belief that “no institution should rest easy in the belief that it is too big to jail.”
The firm will likely continue managing $9 billion of Cohen’s money via a lightly regulated family office after the firm winds down its investment advisory business and returns all outside investor money.
Monitors are typically hired for a limited period of time and often review policies and procedures at the company in question, as is happening with SAC.
Legal experts said compared to cases of the past, the scope of the SAC monitor’s duties appear limited. Lawyer Stanley Keller, who has served as a monitor in the past, said its not a “full-blown long-term independent consultant, but rather a targeted short-term focus.”
“They persuaded the government they’ve also taken steps to remedy the deficiencies and they’re going to have an independent person come and check on what they’ve done,” said Keller, a partner at law firm Edwards Wildman Palmer.
Under the plea agreement, SAC agreed to hire a compliance consultant at its own expense within 10 days of U.S. District Judge Laura Taylor Swain imposing a sentence.
The consultant, which must be approved by Bharara’s office, would evaluate and report on SAC’s insider trading compliance procedures, including in hiring and training.
The consultant would single out any deficiencies in SAC’s compliance procedures. Within 45 days of hiring, the consultant would report to Bharara’s office describing those issues and any steps SAC has taken to remedy them. A subsequent report would be filed within six months of the consultant’s hiring describing SAC’s progress, the plea agreement states.
At the consultant’s discretion, a final report could be issued later about any continuing problems, the document says.
The goal, Bharara said, would be to “make sure everything is going as it should go at the entities during the period of their wind down.”
Editing by Grant McCool
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