Federal judge overseeing SAC civil case clears way for criminal proceeding over $1.8B deal

NEW YORK, N.Y. – A judge who has talked tough about insider trading stepped out of the way Wednesday of a $1.8 billion settlement of civil and criminal charges against hedge fund giant SAC Capital, saying what he thinks of the deal that carries record penalties “is not really relevant today.”

U.S. District Judge Richard J. Sullivan said at a Manhattan hearing in the civil case that to the extent his review of the deal was needed, he believed “there is sufficient basis to approve this settlement.” He said he would sign the necessary paperwork involving the hedge fund owned by billionaire Steven A. Cohen.

But he added that the settlement meant that the need for the “court’s scrutiny is quite minimal … almost nonexistent” and he questioned whether he needed to approve the deal at all.

Sullivan said that was not the case for Judge Laura Taylor Swain, who will preside over the criminal proceeding Friday at which lawyers for the Stamford, Conn.-based hedge fund and related companies were expected to plead guilty to a single count of wire fraud and four counts of securities fraud.

She will have more latitude to decide whether the plea settlement brings a satisfactory end to the case that the government brought over the summer, when U.S. Attorney Preet Bharara announced that SAC Capital earned hundreds of millions of dollars illegally from 1999 to 2010 as its portfolio managers and analysts traded on inside information from at least 20 public companies.

But Sullivan said civil claims could be dismissed by agreement among the parties, absent action by the judge.

The company will pay a $900 million fine and forfeit another $900 million to the federal government, though it can exclude $616 million that SAC companies have already agreed to forfeit to settle parallel actions by the U.S. Securities and Exchange Commission. Assistant U.S. Attorney Sharon Cohen Levin told Sullivan the deal will require SAC to forfeit $284 million more than what it already has agreed to pay in the SEC action.

“Whether I think $1.8 billion or $900 million or $284 million is a sufficient number is not really relevant today,” Sullivan said.

When the settlement was announced Monday, Bharara called it the largest fine in history for insider trading offences. He said the agreement does not prevent his office from continuing to pursue criminal charges whenever it has enough evidence to do so.

Already, at least eight former SAC employees have been criminally charged with insider trading and most have pleaded guilty.

Cohen, who founded the hedge fund in 1992 and built it into one of the biggest and most envied funds, is facing civil charges brought by the SEC in July. He has not been criminally charged and he has disputed the SEC’s allegations. SAC had roughly $15 billion in assets earlier this year, about half belonging to Cohen and his employees and the rest belonging to investors.

As part of the deal with the government, SAC will have to close its funds to outside investors.

After Wednesday’s hearing, lawyers for SAC and a spokesman declined to comment.