Criminal case against SAC is strong: lawyers


The decision by federal prosecutors to bring criminal charges against hedge fund SAC Capital Advisors LP, rather than its billionaire owner, Steven A. Cohen, makes it more likely that the government will be able to secure a guilty verdict, lawyers say.

Attorneys who are following the case said they believe prosecutors have met the standard for convicting a corporation under federal law.

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A corporation is liable for the criminal misdeeds of its employees if they are acting within the actual or apparent scope of their employment and if the intent of their actions - even in part - is to benefit the corporation, said Solomon Wisenberg, co-chair of the white collar crime defense practice group at law firm Barnes & Thornburg.

"It's going to be a virtual slam dunk for the prosecution ... You've got four guys that have already pleaded guilty. They're employees. End of story - they're going down," Wisenberg said.

The U.S. Department of Justice indicted the financial firm on Thursday, accusing Cohen of presiding over a broken business where employees were encouraged to push the envelope to get that extra investing edge, with little regard for whether they were acting honestly and within the law.

The result was "insider trading that was substantial, pervasive and on a scale without known precedent in the hedge fund industry," the government said.

Prosecutors built their case against SAC with help from several former employees who pleaded guilty to charges of criminal insider trading. Authorities allege the guilty pleas by the employees and other evidence establish a long-standing pattern of insider trading at the firm.

SAC has denied the charges, saying that the firm "has never encouraged, promoted or tolerated insider trading and takes its compliance and management obligations seriously." The firm plans to fight the charges and will continue operating as it deals with the indictment.

Andrew Stoltmann, attorney with Stoltmann Law Offices and an adjunct securities law professor at Northwestern University School of Law, said the indictment was "pretty powerful stuff." He said SAC will have difficulty finding sympathetic ears on a jury.

"Other than maybe Wall Street executives, there is probably not a more unappealing defendant to a jury right now than either a hedge fund or a hedge manager," he said.

A former federal prosecutor who read the SAC indictment said he was impressed that prosecutors had been able to tie together so many disparate details into a cohesive whole. There were still some shortfalls in the investigation - the missing final pieces of the puzzle that would have resulted in charges against Cohen rather than the firm.


It is unusual for federal prosecutors to target a large financial firm rather than just going after the employees who allegedly broke the law.

U.S. prosecutors have generally had a bias against indicting corporations since bringing down Enron Corp's accountants, Arthur Andersen, said Michael Miller, a partner at law firm Steptoe & Johnson. The firm was forced to close shortly after its 2002 indictment, although it had already lost much of its business before that occurred.

Andersen was originally found guilty of destroying documents, but the U.S. Supreme Court overturned the conviction in 2005.

"I think there's only one way to read this, which is the government has made a very broad sweeping assessment of the way business is conducted at SAC and determined that on balance, it's problematic," Miller said.

The company is likely to focus on this aspect of the prosecution in early efforts to have the case dismissed, said Barnes & Thornburg's Wisenberg. SAC could try to portray those who have already pleaded guilty as "rogue employees" who were not acting in the interests of the fund.

Others pointed out that SAC could argue that the indictment is punishing more than a thousand employees for the actions of only a few.

But, at least from a historical perspective, the odds are against SAC, according to Martin Sklar, a corporate attorney at hedge fund law firm Kleinberg Kaplan Wolff & Cohen in New York.

"The case is certainly not weak from the point of view of the already established convictions. It seems to me to be a relatively strong case -- stronger than Arthur Andersen, and Arthur Andersen was destroyed," Sklar said.

(Editing by Dan Grebler)