U.S. judge won't rubber-stamp SAC insider trade decision

Tue Nov 5, 2013 6:57pm EST
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By Nate Raymond and Jonathan Stempel

NEW YORK (Reuters) - A Manhattan federal judge signaled on Tuesday that he will not rubber-stamp a central component of billionaire Steven A. Cohen's SAC Capital Advisors LP's record $1.2 billion insider trading settlement with the government, saying he needs more information about the accord's fairness.

Citing the recent judicial "debate" about how closely to scrutinize regulatory settlements, U.S. District Judge Richard Sullivan directed SAC and the U.S. Department of Justice to address at a hearing on Wednesday morning what standard he should use to evaluate the civil forfeiture portion of the accord.

Separately, Sullivan's colleague, U.S. District Judge Laura Taylor Swain, scheduled a Friday hearing to review the criminal portion of the settlement in which SAC agreed to plead guilty to five fraud counts.

That plea ended years of investigations and made SAC the first big Wall Street firm since Drexel Burnham Lambert more than 20 years ago to admit to criminal conduct.

Monday's settlement calls for SAC to pay a $900 million criminal penalty and forfeit $900 million in the civil case. The latter sum would be reduced by $616 million, reflecting prior accords with the U.S. Securities and Exchange Commission.

SAC's $1.8 billion overall penalty represents less than half of the roughly $4 billion of gross profit it has made this year, said a person familiar with the hedge fund's performance and operating structure, who was not authorized to discuss the results.

Both portions of the settlement require judicial approval to become effective, but Sullivan noted disputes among judges about how much discretion to give federal agencies in resolving enforcement actions.

The 2nd U.S. Circuit Court of Appeals is expected to rule at any time whether to uphold or overturn the 2011 rejection by another colleague of Sullivan, U.S. District Judge Jed Rakoff, of a $285 million civil fraud settlement between Citigroup Inc and the U.S. Securities and Exchange Commission.   Continued...

Hedge fund manager Steven A. Cohen, founder and chairman of SAC Capital Advisors, responds to a question during an interview in Las Vegas in this file photo taken May 11, 2011. REUTERS/Steve Marcus/Files