SAC Capital Settlement Talks Fall Apart: Source

Settlement talks between Steve Cohen's hedge fund SAC Capital and the government have broken down, according to sources.

As recently as a week ago, SAC officials were confident that they were close to a settlement deal with the Department of Justice that would have resolved the remaining insider trading issues hanging over SAC Capital related to two pharmaceutical trades from 2008 among others.

These charges possibly could have led to indictments for SAC founder Cohen and the firm more broadly.

Under a discussed deal, SAC would have paid a fine and the government would have agreed not to pursue criminal charges against the firm.

But with reports that Cohen has been subpoenaed to testify and the firm telling investors it is no longer cooperating with the government, those talks appear to have broken down.

In a call with employees on Monday, SAC did not confirm nor deny receipt of the subpoena and reminded staff that the investigation will end soon.

(Read More: Hedge Fund Owner Gets Subpoena to Testify)

Blackstone, which is SAC's largest external investor with about $410 million invested, plans to redeem some of their money before the June deadline, according to sources, as some of Blackstone's own clients are now nervous about SAC.

— Reporting by CNBC's Kate Kelly.

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