Prosecutors said a large volume of evidence including electronic messages, court-ordered wiretaps and consensual recordings is stacked against a Connecticut-based hedge fund that pleaded not guilty Friday to criminal charges accusing it of letting insider trading flourish for more than a decade.
Assistant U.S. Attorney Antonia Apps told a federal judge in Manhattan that investigators had “voluminous” evidence against SAC Capital Advisors, a Stamford, Conn.-based firm owned by billionaire Steven A. Cohen.
She said the evidence included “electronic messages, instant messages, court-ordered wiretaps and consensual recordings.”
The plea was entered by Peter Nussbaum, SAC’s longtime general counsel, and came a day after the company was charged with wire and securities fraud, accused of making hundreds of millions of dollars illegally. Federal prosecutors described a culture at SAC that permitted, if not encouraged, insider trading.
Prosecutors said the victims were large companies whose inside information was stolen and traded upon. The next hearing was set for Sept. 24.
- Marty Schenker, executive editor at Bloomberg. He tweets @mschenker.
JEREMY HOBSON, HOST:
From NPR and WBUR Boston, I'm Jeremy Hobson.
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HOBSON: But first, the giant hedge fund SAC Capital advisors pleaded not guilty today to insider trading after federal prosecutors filed criminal charges yesterday. SAC was indicted on four counts of securities fraud and one count of wire fraud. Authorities say founder Steven Cohen and other executives failed to prevent insider trading between 1999 and 2010. Here is George Venizelos, the head of the FBI's New York office.
GEORGE VENIZELOS: SAC Capital and its management fostered a culture of permissiveness, to be blunt. SAC, through the actions and inactions of its management, not only tolerated cheating, it encouraged it.
HOBSON: Joining us now to discuss this is Marty Schenker, executive editor for top news at Bloomberg News. Marty, first of all, tell us more about these criminal charges against SAC.
MARTY SCHENKER: Well, they filed those criminal charges yesterday after a 10-year investigation of their activities. And what's interesting is that they didn't charge Steven Cohen himself with any criminal activity. So, effectively, they're attempting to close down this hedge fund that they think has been operating as a - essentially, a criminal enterprise for all this time, making huge profits by using inside information.
HOBSON: And what is SAC saying about this?
SCHENKER: Well, SAC says this is - that there may be a handful of its employees who may have done improper things, but that does not color what this firm does. They have a very intricate compliance department where they brief everybody on how you should conduct themselves. And they claimed that they did nothing wrong as an institution, and that there's just a small group of people who may have done something wrong. And they maintain they're going to stay in business.
HOBSON: Marty, insider trading is not always cut-and-dry. In this case, is it easy to tell what really happened here, or is something that is very nuanced?
SCHENKER: Well, it is somewhat nuanced. Today, it was revealed that - in the pleading in court, that the U.S. attorney has, quote-unquote "wiretaps." Now, that's the first indication we've ever had that they actually have conversations that may buttress their case for trading on non-public information. We don't know what the nature of those wiretaps are, but before that time, we couldn't figure out - as Bloomberg News is covering this story - exactly what they may have had. Steven Cohen was very careful about making sure that the compliance rules that he had in place were adhered to.
Now, the U.S. attorney says that that was just a ruse, that he should have known the information he was getting was gotten inappropriately.
HOBSON: Give us a sense of where SAC Capital fits into the financial industry, and how big of a deal this is.
SCHENKER: Well, it's a tremendously big deal. SAC Capital was the best-performing hedge fund in the industry for a decade. It would commonly out-perform any other investment vehicle that people could find. So wealthy people and others would park their money there, get great returns. And his own personal money was invested in SAC, as well, and employees. They have something like $8 billion of their own and their employees' money invested in the SAC hedge fund. Plus, because of all the trading that they do, they generate a tremendous amount of fees for the banks that help provide the liquidity for their trading. So...
HOBSON: Well, how can a firm that's that big and that important and that powerful be involved in something that's being called not just tolerating cheating, but encouraging it?
SCHENKER: It does seem to defy reason. But it's Steven Cohen's contention that he has operated completely within the rules of the game. And those rules have - while the laws themselves haven't changed, the view towards those activities has somewhat changed, and especially since the financial crisis of 2008. The hedge funds did not have any role in the meltdown of the financial markets, but the scrutiny of how money is generated on Wall Street has. And having the things growing out of that financial crisis is the amount of investigation that is being done on how people make money on Wall Street.
HOBSON: Marty, is it possible that SAC's entire existence is at risk, here?
SCHENKER: Well, absolutely. One of the interesting parts of this is not so much the criminal indictment, but the civil suit that was filed at the same time, accusing SAC of money laundering. That could lead to severe financial penalties, including billions of dollars of their own assets being confiscated by the United States. That would be truly unprecedented.
HOBSON: Marty Schenker, executive editor for top news at Bloomberg News, speaking with us about the giant hedge fund SAC Capital Advisors, which today pleaded not guilt to charges of insider trading. Marty, thanks.
SCHENKER: You're welcome. See you. Transcript provided by NPR, Copyright NPR.