U.S. judge accepts SAC guilty plea, approves $1.2 billion deal

U.S. judge accepts SAC guilty plea, approves $1.2 billion deal Thu, Apr 10 22:13 PM EDT image By Nate Raymond and Emily Flitter NEW YORK (Reuters) - SAC Capital Advisors' $1.2 billion criminal settlement for insider trading received final court approval on Thursday, as a U.S. judge accepted a guilty plea from the hedge fund firm run by billionaire Steven A. Cohen. At a hearing in Manhattan federal court, U.S. District Judge Laura Taylor Swain accepted SAC Capital's guilty plea to fraud charges and payment of a $900 million fine. In total, SAC Capital has agreed to pay $1.8 billion to resolve criminal and civil probes into insider trading. The U.S. Department of Justice said that payout is the largest insider trading settlement in history.

"These crimes clearly were motivated by greed, and these breaches of the public trust require serious penalties," Swain said.

SAC Capital also agreed to be placed on probation for five years, and employ a compliance consultant, former federal prosecutor Bart Schwartz. The sentencing marks the end of an era for SAC Capital, which last year had $15 billion of assets under management, according to court documents. An indictment in July alleged systemic insider trading took place at SAC Capital involving the stocks of more than 20 publicly-traded companies from 1999 through 2010. Eight employees have pleaded guilty or been convicted at trial. SAC Capital agreed in November to plead guilty to four counts of securities fraud and one count of wire fraud. "Today marks the day of reckoning for a fund that was riddled with criminal conduct," Manhattan U.S. Attorney Preet Bharara said in a statement. 'DIFFICULT PERIOD' The $900 million fine comes on top of a $900 million judgment approved in November by U.S. District Judge Richard Sullivan in a related civil forfeiture case. That judgment gave SAC Capital credit for $616 million in earlier insider trading settlements with the U.S. Securities and Exchange Commission, resulting in SAC Capital paying an additional $1.2 billion as part of the criminal accord. Had Swain rejected the deal, SAC Capital would have had the right to withdraw its guilty plea. The Stamford, Connecticut-based firm rebranded itself Point72 Asset Management on Monday, and is becoming a family office that will primarily manage Cohen's personal fortune, most recently estimated by Forbes magazine at $11.1 billion. Three of the four SAC Capital entities that pleaded guilty no longer manage investments, while the fourth may need 1-1/2 years to shed a "limited number of hard to liquidate assets," Martin Klotz, a lawyer for SAC Capital, said Thursday. As of February 1, the 800-employee firm, which Cohen started in 1992 with $25 million, oversaw $11.9 billion, according to regulatory filings. In a letter to employees Thursday, Tom Conheeney, the firm's president, said the judge's approval "brings to a close the government's proceedings against our firm and a difficult period for us all." "We will do whatever we can to make sure this doesn't happen again," he said. BROAD CRACKDOWN The settlement came amid a crackdown on insider trading on Wall Street by Bharara's office that has resulted in 80 individuals being convicted at trial or pleading guilty since October 2009. They include Michael Steinberg and Mathew Martoma, two SAC Capital portfolio managers who were found guilty in separate criminal trials in December and February. Both deny wrongdoing and are expected to appeal. Cohen, 57, has not been criminally charged. But in July, the SEC launched an administrative action to bar him from the securities industry for failing to supervise Martoma and Steinberg and prevent insider trading. Cohen has denied the SEC allegations, but has been in contact with the regulator regarding a possible settlement, a person familiar with the matter has said. Among the sticking points are whether the SEC should impose a lifetime industry ban on Cohen, or prevent employees from managing outside money, another person familiar with the case said. SENTENCING Cohen did not appear at Thursday's hearing, and his firm was represented by Peter Nussbaum, SAC Capital's general counsel.

"We accept responsibility for the misconduct of our employees brought before your honor," Nussbaum said.

Swain had also been expected Thursday to weigh a request for more than $1.5 million in restitution from SAC Capital by Elan Corp, a company at the heart of Martoma's case and now owned by Perrigo Co. SAC Capital had objected to the request but settled with Elan before the hearing, said Terence Healy, a lawyer for Elan. Asked by Swain during the hearing about the scope of Schwartz's consultant role, Antonia Apps, an assistant U.S. attorney, said he would have a "broad mandate" to evaluate and review SAC's compliance procedures and identify deficiencies. "While they may have had compliance policies on paper, they were clearly deficient in deferring insider trading," Apps said. The case is U.S. v. SAC Capital Advisors LP, U.S. District Court, Southern District of New York, No. 13-cr-00541. (Reporting by Nate Raymond and Emily Flitter in New York; Additional reporting by Joseph Ax, Jonathan Stempel and Svea Herbst-Bayliss; Editing by David Gregorio, Andrew Hay and Lisa Shumaker)

Raj Rajaratnam brother charged with insider trading

Raj Rajaratnam brother charged with insider trading Thu, Mar 21 18:39 PM EDT By Nate Raymond NEW YORK (Reuters) - Raj Rajaratnam's younger brother was indicted on charges of conspiring in the insider-trading scheme for which the founder of the Galleon Group hedge fund was convicted nearly two years ago, U.S. prosecutors announced on Thursday. Prosecutors said Rengan Rajaratnam, 42, conspired with his older brother to trade on non-public information concerning Clearwire Corp and Advanced Micro Devices Inc in 2008. Rengan Rajaratnam was a portfolio manager at Galleon, and the trades for which he was charged resulted in nearly $1.2 million of illegal profit, according to U.S. Attorney Preet Bharara in Manhattan, who announced the charges. Rengan Rajaratnam was charged with six counts of securities fraud and one count of conspiracy, and faces up to 20 years in prison on each of the fraud counts. He has not been arrested. He is not in the United States and is believed to be in Brazil, a person familiar with the matter said. David Tobin, a lawyer for Rengan Rajaratnam, did not immediately respond to a request for comment. The charges arise from a broad U.S. government crackdown on insider trading. Since October 2009, seventy-seven people have been charged by Bharara's office in that probe, and 71 have been convicted. The FBI and U.S. Securities and Exchange Commission are still investigating. Raj Rajaratnam, 55, received an 11-year prison sentence in October 2011 after a jury convicted him the previous May. He is appealing his conviction, as well as the government's use of wiretaps to obtain it. Wiretap evidence was also used in the case against Rengan Rajaratnam. "Rengan Rajaratnam and his brother shared more than DNA," Bharara said in a statement. "They also shared a penchant for insider trading." The SEC filed separate civil charges against Rengan Rajaratnam, whose full first name is Rajarengan. The SEC lawsuit alleges a broader scheme that netted $3 million in illicit gains for Rengan Rajaratnam and hedge funds he managed following trades on stocks including Polycom Inc and Hilton Hotels. The Polycom trade took place in January 2006 when Rengan Rajaratnam was a portfolio manager at Sedna Capital Management, which he founded in 2004. Before founding the firm, he worked briefly at Steven Cohen's SAC Capital Advisors LP as an analyst, the SEC said. 'GONNA RIP' Some of the allegations in the criminal case relate to activity that prosecutors said took place in March 2008. That made it an imperative to bring securities fraud charges on those allegations now, because of a five-year statute of limitations. Thursday's charges focus on two particular instances of Rajaratnam obtaining inside information. The first came in March 2008 after Rajiv Goel, then an executive at Intel Corp, told Raj Rajaratnam about Intel's plans to make a $1 billion investment in Clearwire. After a news report describing some details of that transaction surfaced, the younger Rajaratnam allegedly said on a phone call to his brother that the "Clearwire stuff ... just hit." "So, I don't know how much you got in today, but I think (Clearwire's share price) is gonna rip tomorrow," Rengan Rajaratnam said, referring to Raj Rajaratnam's Clearwire purchases that day and the possible direction of its stock price the next day. Prosecutors said Rengan Rajaratnam earned $101,070 from Clearwire trades in his personal brokerage account, while two Galleon funds he oversaw earned a combined $1.08 million. Goel cooperated with prosecutors in the probe. He pleaded guilty to conspiracy to commit securities fraud in 2010 and was sentenced in September to two years probation. SPILLING THE BEANS The second instance concerned information received from former McKinsey & Co director Anil Kumar, who was sentenced to two years probation last July following an earlier guilty plea to securities fraud charges. Prosecutors said that in August 2008 Kumar told Raj Rajaratnam about a deal between McKinsey client AMD and the Abu Dhabi Investment Authority, and that three hours later Raj Rajaratnam advised his brother about it. They said that after Raj Rajaratnam bought 3 million AMD shares for a hedge fund he managed and 250,000 shares for a fund his brother managed, Rengan Rajaratnam told his brother by phone that another McKinsey partner "spilled his beans" and "volunteered the information about the investments" in AMD. The other McKinsey partner is David Palecek, according to the SEC complaint. He died in 2010. Catherine Redlich, a lawyer who represented Palecek in the investigation, in an email said "there is no proof David ever agreed to provide inside information to the Rajaratnams and no proof that he received money or other benefits from them for doing so." A representative for McKinsey did not immediately respond to a request for comment. Former McKinsey chief Rajat Gupta is separately appealing his conviction and two-year prison term for feeding information to Raj Rajaratnam that he had learned from board meetings at Goldman Sachs Group Inc, where he had been a director. The cases are U.S. v. Rajaratnam, U.S. District Court, Southern District of New York, No. 13-cr-00211; and SEC v. Rajaratnam in the same court, No. 13-01894. (Reporting by Nate Raymond in New York; Editing by Gary Hill, Richard Chang, David Gregorio and Steve Orlofsky)