What’s Left for SAC Capital Employees?

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It’s finally happened. After one of the longest-running investigations in recent memory, federal prosecutors on Thursday filed criminal insider trading charges against SAC Capital, putting the firm in danger of being shuttered. The indictment is chock-full of eyebrow-raising goodies.

The firm’s “institutional indifference” to following regulations led to “substantial, pervasive” insider trading that was “on a scale without precedent in the hedge fund industry,” the indictment read.

So what do they mean by “indifference?” Here are a few examples. SAC put particular emphasis on hiring portfolio managers with personal industry contacts. One candidate was mentioned in a positive write-up as “the guy who knows the quarters cold, has a share house in the Hamptons with the CFO of [a Fortune 100 industrial sector company], tight with management.”

In another instance, a newly-hired PM told SAC founder Steven Cohen in an instant message that he planned on shorting Nokia following some “recent research.” He apologized for being “cryptic” in his message, noting that SAC’s compliance head “was giving me Rules 101 yesterday – so I won’t be saying much[.] [T]oo scary.”

In 2008, Cohen was warned that Richard Lee, a PM whom he was preparing to hire, had a reputation for insider trading. Cohen hired him anyway. The tip was a good one – Lee pleaded guilty to insider trading earlier this year. There are plenty of other examples of gross indifference, well documented by DealBreaker.

For those who still remain at SAC, the future looks bleak. No major firm has survived a criminal indictment – it’s typically a deathblow. One of the problems facing SAC employees is the firm’s compensation structure. SAC reportedly defers a significant share of employee compensation to keep traders from walking away. Even if they want to leave, some may feel obliged to stick around and see what happens. Still, headhunters say plenty of SAC resumes are showing up on their desks.

As of writing this, SAC is still open for business, although two-thirds of its employees aren’t on their Bloomberg terminals.

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