The longest ongoing government "sting" operation against a hedge fund, possibly in all of history, that which absolutely everyone has known about for years now i.e., against Steve Cohen's SAC and its Bernie Madoff-esque series of profitable years (at least until recently that is, when "expert networks" no longer accept any calls originating out of Connecticut or New York), may be coming to an end, following what the WSJ reports may be an imminent filing of criminal charges against the hedge fund. "U.S. prosecutors are considering possible criminal charges against SAC Capital Advisors LP as a result of the government's insider-trading investigation of the hedge-fund firm, according to people familiar with the matter. It isn't clear what led prosecutors to warn the Stamford, Conn., hedge-fund operator that it could be charged criminally. But the move is the strongest sign yet that prosecutors and the Federal Bureau of Investigation are trying to ratchet up the pressure as a five-year deadline looms to file the most serious charges related to trading that allegedly involved Mr. Cohen."
Don't worry about Stevie though: the probability that he will spend even an HFT nanosecond in prison, let alone ever be forced to pay restitution in a "victimless crime" is virtually nil, because collecting 3 and 50 for decades buys a lot of lawyers. A lot of lawyers who are well versed with the legal system's latest loophole: deferred-prosecution.
SAC and its lawyers have also discussed with federal prosecutors the possibility of alternatives including negotiating a deferred-prosecution agreement, in which criminal charges could be filed against the company and basically settled at the same time, the people said.
Deferred-prosecution agreements often include specified facts regarding the circumstances of the alleged criminal violation, fines and onerous conditions such as an outside monitor of a company's operations.
Such deals spare the defendant the damage of a criminal prosecution, and charges usually are dismissed later if the company abides by the agreement and avoids trouble.
That said, even a limited criminal escalation will likely mean the exit of all outside investors, with BlackStone as the likely catalyst (and other FoFs to follow):
Some big investors have grown increasingly concerned about the vulnerability of SAC to the criminal investigation, according to people familiar with the matter.
The company's new policy of silence about the probe is likely to deepen those concerns. After reviewing their investing guidelines or seeking advice from superiors, some clients have concluded they can no longer invest with the hedge-fund firm.
SAC's largest outside investor, Blackstone Group LP, has made preparations to yank $200 million to $300 million from the hedge-fund company, according to people involved in discussions about the plans.
As of March, Blackstone's asset-management unit had $550 million invested with SAC on behalf of Blackstone clients, including public pension funds.
Blackstone has been weighing the planned withdrawals for several weeks. A spokesman declined to comment. The firm's moves are watched closely by other investors because of Blackstone's heft: It had $48 billion in hedge-fund investments at the end of March.
Some other SAC clients have sought information about Blackstone's withdrawal plans, partly to assess by how much the hedge-fund firm's assets might shrink.
All of which simply means that Cohen will merely convert into a "friend, employees and family" office: at last check just the employees had billions of their own cash invested in the hedge fund.
Then again, with SAC able to generate just a 6% return through April, or far below the broader market now managed much better by Portfolio Manager Ben Bernanke, very soon no hedge fund will be needed, because with every passing day it becomes clearer that no correction will ever be allowed again. Ever. And when one does happen, no amount of "hedging" will preserve any invested capital - there will be far bigger concerns on that day...
Finally, for an amusing take of what may have been the catalyst that sent the government over the edge, we go to Charlie Gasparino who has some advice for art lovers everywhere: maybe put off that $100 million painting purchase until after the government is done investigating you...
FBN NEWS: One deal on the table included a "re start" of SAC after deferred prosecution where SAC would raise money for a new fund
— Charles Gasparino (@CGasparino) May 20, 2013