More On Legal & Compliancefrom The Advisor's Professional Library
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
SAC Capital Advisors LP pleaded guilty Monday to insider trading in charges brought by the Department of Justice and will pay a $1.2 billion fine—the largest ever insider trading penalty.
U.S. Attorney Preet Bahrara’s office in the Southern District of New York tweeted Monday morning: "SAC mgmt companies agree to plead guilty to all counts in crim indict, pay $1.8 billion, & terminate SAC Capital’s investment advisory bus."
Bahrara called the penalties “steep but fair” and “commensurate with the breadth and duration of the charged criminal conduct.”
The $1.2 billion penalty, which is on top of the $616 million in insider trading fines that SAC agreed to pay to federal regulators earlier this year, does not include civil charges brought by the Securities and Exchange Commission against SAC’s founder, Steven Cohen. The SEC says that Cohen failed to supervise two senior employees and prevent them from insider trading under his watch, and the agency is seeking to bar Cohen from the securities industry.
While Cohen has yet to be charged criminally, the settlement with prosecutors includes the winding down of the firm as an investment advisor and the surrender of its SEC registration.
Cohen would still be allowed to manage his own money by running a family office, which the Wall Street Journal reported could happen in the near future. Cohen’s firm, which managed $15 billion at the beginning of the year, is expected to manage the $9 billion that belongs to him and employees under the family office, the Journal said.
Discussions over when Cohen might be permitted to resume management of outside funds are still progressing, and the SEC is expected to have the final say.
Four units of hedge fund group SAC were indicted in the criminal case in July, and six of the eight fund managers and analysts charged pleaded guilty. The two who have not, Michael Steinberg and Mathew Martoma, are going to trial with the firm paying their legal fees.
Under Cohen’s leadership, the firm raked in annual returns that topped 25% annually for more than 20 years. Still, as the investigation has progressed, the firm’s investors have asked for more than $5 billion back of the $15 billion it had under management as of last January.
The New York Times reported Wednesday that Cohen is auctioning off $80 million worth of art.
Check out Janet Tavakoli: SEC Needs to Wake Up, Make Bad Money Managers Pay Up on ThinkAdvisor.