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There is often a degree of schadenfreude accompanying the news of a titan’s decline in the business and financial world, be it a corporation or an individual. But when said decline is the result of criminal activity, this peculiar emotion is closer to a joy for justice served than derision for honest failure. And thus is the sensation being felt throughout the business and political communities today on word that the once unblemished, near-omnipotent hedge fund SAC Capitol Advisors is pleading guilty to insider trading and looks set to pay nearly $2 billion in fines.
5 SAC Opens Its Doors in 1992
When SAC incorporated back in the early 1990s, it had approximately $25 million dollars in assets and only 9 employees. The company took its name, SAC (which would be used by several related firms, such as SAC Partners and SAC Capital Management) from the initials of its founder, Steven A. Cohen. Over the next two decades the company would outperform myriad rivals, seeing its asset value increase by more than 600% and adding some 800 additional employees.
4 SAC Saw Annual Returns Averaging 25% for Decades
The federal investigations of the past few years and the recent settlement may finally explain how clients of Steven Cohen/SAC Capital Advisors saw returns on their investments averaging 25% annually. Traders relying on an investment portfolio couched in the Dow Jones Industrial Average would have seen a return of less than 7.5% over the past decade. How Cohen managed to beat the markets so handily has always been something of a mystery, perhaps one explained by the use of illegal trading practices.
3 SAC Has Faced Criminal Charges Plural Times Before
In 2006 alone, SAC Capital Advisors was at the center of two legal battles. The first was leveled by the pharmaceutical company Biovail, the second was a suit brought by Fairfax Financial Holdings. In both cases, SAC was accused of manipulating the stock prices of the companies by soliciting the publication of inaccurately negative reports. The Biovail case actually ended with the drug company paying a small fine after a countersuit, and the Fairfax Financial case was dismissed. Nonetheless, regulators and prosecutors alike began to watch SAC more carefully.
2 The Feds Finally Indict SAC This Summer
This summer, federal prosecutors announced that they were filing charges against SAC Capital Advisors based on more than a decade of “systematic” insider trading. The charges allege that SAC garnered hundreds of millions of dollars beyond what a legitimate firm could have raised based on its illegal activity. While multiple former SAC employees were named in the federal indictment, Steven Cohen himself was not directly hit with any charges.
1 SAC Pleads Guilty
Hoping to fend off an even worse outcome from the losing end of a criminal trial, SAC Capital Advisors has just agreed to plead guilty to both securities and wire fraud charges. The firm will reportedly settle the federal suits brought against it with the payment of a massive fine: SAC will dole out $1.8 billion. And beyond that monetary settlement, SAC has agreed to cease managing money for outside investors, thus losing a huge revenue stream in the form of commissions, not to mention the crippling and permanent loss of prestige the company and its billionaire founder will endure.