Steven Cohen's long personal immunity to accusations of insider trading that have circled his hedge fund and former employees has come to an end.
The Securities and Exchange Commission announced Friday that Cohen would have to answer to civil claims that he failed to "reasonably supervise" two senior people at SAC Capital who have been accused of engaging in criminal insider trading. Cohen's case is not criminal, however, and the SEC doesn't accuse him of engaging in insider trading.
Instead Cohen will be accused in an administrative hearing of failing to supervise the wrongdoers. Penalties, if any, would be determined through the administrative hearing. The SEC said they could include fines and a bar from the securities industry, which could mean the end for SAC Capital. Alternatively, Cohen could be forced to close his fund to outside investors. He and fellow SAC employees have about $9 billion in the fund.
"Both portfolio managers provided information to Cohen indicating that they may have had access to inside information to support their trading," the SEC said in a statement. "In each case, Cohen received highly suspicious information that should have caused any reasonable hedge fund manager in Cohen's position to take prompt action to determine whether employees under his supervision were engaged in unlawful conduct and to prevent violations of the federal securities laws. Cohen failed to take reasonable steps to investigate and prevent such violations. "
The SEC said these trades allowed SAC to avoid hundreds of millions in losses.
(Read more: Social media reaction to the Cohen charges)
A spokesman for SAC Capital said, "The SEC's administrative proceeding has no merit. Steve Cohen acted appropriately at all times and will fight this charge vigorously. The S.E.C. ignores SAC's exceptional supervisory structure, its extensive compliance policies and procedures, and Steve Cohen's strong support for SAC's compliance program."
The SAC team had some harsh words for how the media is handling the case.
"The press speculates about a lot of things in this case, but one of the possibilities that the press doesn't engage in is the possibility that Steve Cohen didn't do anything wrong. We believe the evidence will show he did nothing wrong," said Dan Kramer, an attorney for SAC Capital.
(Read more: SAC Capital's biggest positions)
A spokesman for Preet Bharara, the U.S. Attorney for the Southern District in Manhattan whose office is investigating SAC Capital, declined to comment on the SEC's action. Earlier in the week, during the Delivering Alpha conference co-sponsored by CNBC and Institutional Investor, Bharara declined to comment on the SAC case as well, but warned about financial cases generally that "no one is too big to jail."
The SEC's charges might be viewed as a victory of sorts for Cohen. Although he has been accused of civil violations of securities laws, the charges are much less serious than those his employees face.
Securities attorney Andrew Stoltmann said the SEC charges were disappointing.
"This was the easiest step for the SEC to take," he said. "The commission gets the big headline that they wanted, but it is a tacit acknowledgement it couldn't make a criminal case against Cohen."
—By CNBC's John Carney. Follow me on Twitter @Carney