After the indictment last week, senior bank executives debated whether the government's charges required them to terminate their relationship with SAC, or whether it was too hazardous trading with a firm operating under indictment.
"Everyone had the conversation, and it happened at the highest levels," said a senior Wall Street executive who spoke on the condition that he not be named because he was not authorized to discuss the matter publicly.
The decision to keep SAC as a client was based on a number of factors, according to conversations with four executives at three banks, who all deal directly with the fund.
A major reason the banks continue to trade with SAC is that the fund is viewed as a safe trading partner. SAC is considered very well capitalized, and the government did not freeze any of its assets nor has it tried to affect the fund's operations.
Another critical factor is the presumption of innocence. Bank executives reason that it would be unfair to terminate a relationship based on accusations. The fund said that it "has never encouraged, promoted or tolerated insider trading and takes its compliance and management obligations seriously."
The banks also note that SAC has bolstered its legal and compliance staff. Today, there are about 40 compliance personnel, an increase from 10 in 2008, when much of the activity at the center of the indictment took place. SAC spends millions of dollars a year on surveillance of trading activity and communications like e-mail and phone conversations.
"You're dealing with a more buttoned-up infrastructure there in 2013 than you were a few years ago," a Wall Street executive said.
(Read more: SEC charges analyst with giving SAC inside information)
There is also, in some executives' views, little that is new contained in the indictment. Prosecutors still have not charged Mr. Cohen, who owns 100 percent of the firm. They also note that of the eight former SAC employees accused in the filing of insider trading, seven were previously known, with six having already pleaded guilty.
Mr. Lee was the former employee whose role in the investigation was not publicly known until last week.
A 34-year-old trader who graduated from Brown University, Mr. Lee pursued Wall Street riches after a stint at the Clinton Foundation and at the consulting firm McKinsey & Company, according to public records. His hedge fund career began in 2003 as an analyst for the prestigious firm Farallon Capital Management. Seeking a new role three years later, he interviewed at SAC, but accepted a job at Citadel.
Working from his native Chicago, Mr. Lee was part of Citadel's special situations group, placing bets tied to events like product recalls or companies being sued. With a trim build and a soft-spoken manner, Mr. Lee did little to attract attention.
But after two years, when his boss moved on, Citadel thrust Mr. Lee into a new role atop the desk. The promotion took effect on March 31, 2008.
That evening, as Mr. Lee valued existing positions, he edited some of the figures to underestimate his predecessor's returns. That way, the people briefed on the matter said, Mr. Lee could collect even greater gains if the position continued to rise, a move that would have increased his pay by $100,000 or more. Within hours, the people said, a colleague flagged Mr. Lee's activity.
Kenneth C. Griffin, Citadel's chief executive, approved the decision to fire him. The New York Post reported earlier that he was fired the first day on his new job.
In April 2009, Mr. Lee joined SAC. He did so, prosecutors said, over objections of SAC's lawyers. Mr. Cohen "received a warning" from a Citadel employee that Mr. Lee belonged to Citadel's "insider trading group," said the government filing.
Citadel, which has not been accused of wrongdoing, said in a statement that "it does not have, and never has had, an 'insider trading group.' "
It is unclear how Mr. Lee, despite his problems at Citadel, persuaded SAC to hire him, though he had a previous interview experience to draw upon.
In a 2006 interview with SAC, the indictment said, Mr. Lee told the fund that he routinely relied on so-called expert networks that connect traders with corporate insiders. A senior SAC executive, however, told Mr. Lee that the fund's top traders typically tapped their own personal network of public company employees for information.
—By Ben Protess and Peter Lattman of The New York Times