US Judge Puts SAC Capital Civil Lawsuit on Hold

Wednesday, 04 Sep 2013 12:13 PM


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A U.S. judge put on hold a civil forfeiture lawsuit against Steven A. Cohen's SAC Capital Advisors hedge fund on Wednesday while a criminal insider-trading case moves forward.

U.S. District Judge Richard Sullivan in New York agreed during a hearing to a request by prosecutors to stay the proceedings on the grounds that allowing depositions and document discovery to proceed would adversely hurt the criminal case.

During the hearing Sullivan expressed concerns about "stopping this dead and starting from zero."

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But he agreed to a delay until Jan. 3 after a SAC Capital lawyer told him the government has handed over terabytes of material in the criminal case relevant to the civil one, ensuring it would not start from the beginning when the stay was lifted.

The civil forfeiture action was filed in July, the same day prosecutors unveiled an indictment accusing Cohen's $14 billion hedge fund with criminal responsibility for insider trading committed by employees over more than a decade.

Sullivan, who is presiding over the forfeiture action, approved a protective order in August that would allow SAC Capital to continue operating while the criminal action moves forward.

The forfeiture action accuses SAC Capital of money laundering and seeks civil penalties. Under the protective agreement, it must maintain 85 percent of the assets held by its management company.

A related proceeding by the U.S. Securities and Exchange Commission that accuses Cohen of failing to supervise two of his employees was put on hold last month.

No trial date has been set in the criminal case against SAC Capital. The next hearing is Sept. 24.

Unlike in many cases where parallel civil and criminal cases by the government are pending, SAC Capital did not object to putting the forfeiture case on hold.

"There's just a lot of discovery to get through" in the criminal case, said Michael Schachter, a lawyer at Willkie Farr & Gallagher representing SAC Capital.

Sullivan initially appeared to resist the idea of putting the case on hold.

Micah Smith, a lawyer with the U.S. Attorney's Office in Manhattan, requested as an alternative that the judge at least delay depositions of government witnesses who had not yet testified in related criminal trials.

He also noted two potential defendants that SAC Capital might want to depose in the forfeiture case who would likely cite their Fifth Amendment right under the U.S. Constitution against self-incrimination.

The two defendants are Mathew Martoma and Michael Steinberg, who worked at SAC Capital and face separate criminal insider trading trials in November.

Smith, in arguing for the stay, also emphasized that a "great deal of documents" had already been produced in the criminal case relevant to the civil case.

"This is not a case where significant documents must be produced to have meaningful settlement discussions in the civil case," Smith said.

Editor’s Note:
Obama’s Budget Takes Aim at Retired Americans

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