S.A.C. Capital Advisors hit with insider trading criminal charges

S.A.C. Capital Advisors and three affiliated companies were indicted on criminal charges in connection with an alleged insider trading scheme on Thursday.

The grand jury indictment in U.S. District Court in Manhattan was unsealed Thursday and leveled four counts of securities fraud and one count of wire fraud against parent company S.A.C. Capital Advisors LP and affiliates S.A.C. Capital Advisors LLC, CR Intrinsic Investors and Sigma Capital Management.

The indictment alleges “insider trading offenses committed by numerous employees” of S.A.C. and its affiliated companies were “made possible by institutional practices that encouraged the widespread solicitation and use of illegal inside information.”

S.A.C. has been the subject of federal investigations into insider trading allegations since early 2012. Court documents alleged that beginning in 2008, portfolio managers at S.A.C. and its affiliates traded on inside information they received about a wide variety of companies, including Research in Motion Ltd., NVIDIA Corp., Marvell Technology Group Ltd., Avnet Inc., Fairchild Semiconductor Corp., Qualcomm Atheros Inc., Broadcom Corp. and Dell Inc.

The case, brought by Preetinder Singh “Preet” Bharara, U.S. attorney for the southern district of New York, further alleged S.A.C.'s “institutional indifference” to the unlawful conduct of portfolio managers at the firm and its affiliates resulted in “insider trading that was substantial, pervasive and on a scale without known precedent in the hedge fund industry.”

Steven A. Cohen, founder and CEO of S.A.C. Capital Advisors, was not named in the criminal indictment, although the document does make frequent reference to “an individual residing in Greenwich, Conn.,” which it labeled the “S.A.C. owner”, who held the majority of capital managed in S.A.C.'s hedge funds. Mr. Cohen lives in Greenwich

Separately, Mr. Cohen was charged last week with failure to supervise two senior employees and stop them from conducting insider trading within S.A.C.-affiliated hedge fund managers. Mr. Cohen faces potential financial penalties and a supervisory and financial services industry bar from the S.E.C. civil administrative hearing.

“S.A.C. has never encouraged, promoted or tolerated insider trading and takes its compliance and management obligations seriously,” said Jonathan Gasthalter, S.A.C.'s spokesman, in an e-mail response to a request for comment.

“The handful of men who admit they broke the law does not reflect the honesty, integrity and character of the thousands of men and women who have worked at S.A.C. over the past 21 years. S.A.C. will continue to operate as we work through these matters,” Mr. Gasthalter added.