SAC Capital's $1.8B insider trading — the hedge fund that paid the biggest fine ever

SAC Capital Advisors was one of the most successful hedge funds in history, founded by Steven Cohen in 1992 with $25 million of his own money. By 2008, it managed $16 billion in assets and delivered an average annual return of 30% after fees — the highest of any major hedge fund. Cohen charged 3% management fees and 50% of profits, and at its peak the firm employed 800 people and accounted for 3% of NYSE daily trading volume.

The SEC and Justice Department spent six years investigating SAC. The evidence showed systematic insider trading: eight former employees were convicted or pleaded guilty to insider trading charges. The firm's culture encouraged collecting and trading on material non-public information, using a 'mosaic theory' defense that was ultimately rejected by prosecutors. The most prominent case involved Mathew Martoma, a portfolio manager who traded on confidential clinical trial data about an Alzheimer's drug, generating $276 million in illegal profits.

SAC Capital pleaded guilty to five criminal counts in November 2013 and agreed to stop managing outside capital. The total penalties reached $1.8 billion — $900 million in criminal fines and $900 million in civil forfeiture, plus $616 million previously paid to settle SEC civil charges. It was the largest penalty ever imposed against a hedge fund. Cohen was barred from managing outside money until 2018, though he was never personally charged. He launched Point72 Asset Management as a family office, which grew to manage $45 billion by 2026.