Hedge Funds

SAC judge makes historic insider trading statement

Judge approves criminal settlement with SAC Capital
Judge approves criminal settlement with SAC Capital

Five months after its initial terms were set, a historic criminal settlement between the former hedge fund SAC Capital and the Justice Department was approved by a U.S. district judge in a lower Manhattan court Thursday.

During a public sentencing that lasted nearly two hours, Judge Laura Swain signed off on the firm's guilty plea for insider trading charges and approved a $900 million fine it had agreed to in November.

The total is half of the agreed-to $1.8 billion settlement and is the biggest criminal fine ever imposed for insider trading. The remaining $900 million is to settle a civil forfeiture case—an amount that includes a credit for the $616 million SAC paid to the SEC in a separate case.

Counsel for the firm, as well as the government, urged the judge to accept the terms of the agreement prior to the sentencing.

Signage for SAC Capital Advisors at its offices in Stamford, Conn.
Douglas Healey | Bloomberg | Getty Images

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Before signing off of the settlement and fine, Swain extensively questioned prosecutors on how they arrived at the profit and avoided loss amounts for four former subsidiaries of SAC, which has since become a private money manager and renamed itself Point72.

The judge also asked whether that amount took into account all individuals who acted on the insider information or just the eight former SAC employees who were named in a July 2013 indictment.

Of those eight former SAC employees, six have pleaded guilty and two, Michael Steinberg and Mathew Martoma, were found guilty at trial of charges related to insider trading.

In addition to the fine—which Swain referred to as "unprecedented" and "that exceeds the requirements" by law—she also approved Bart Schwartz as the independent compliance consultant who is now expected to identify and correct any future compliance deficiencies within entities owned by SAC's founder, Steve Cohen, now housed within the Point72 parent company.

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Cohen himself still faces a separate Securities and Exchange Commission investigation over failure to supervise his employees that could result in a lifetime ban from the securities industry. That case was stayed until all criminal cases were resolved; in March, administrative law Judge Brenda Murray issued an order to continue the stay, noting that the U.S. attorney's office should file a written notice on or before May 28 as to whether the stay should continue.

Steinberg is scheduled to be sentenced on April 25, and Martoma is set to be sentenced on June 10.

Point72's general counsel, Peter Nussbaum, noted during the sentencing that the firm is "absolutely committed to moving forward in a positive and responsible manner."

—By CNBC's Dawn Giel