When Steven A. Cohen's lawyers arrived for a meeting this spring at the United States attorney's offices in Lower Manhattan, in a Brutalist-style building tucked behind a pair of courthouses, the conference room was so packed with federal investigators that one official had to venture down the hall for additional chairs.
The meeting was just weeks after Mr. Cohen's hedge fund, SAC Capital Advisors, paid $616 million to settle two civil insider trading cases, and his lawyers were there to present a broad defense of the fund.
But the marshaled might of law enforcement - which people briefed on the matter said were 17 officials, including representatives from the Securities and Exchange Commission and the F.B.I., and postal inspectors as well as federal prosecutors - signaled that the government was no longer interested in just monetary settlements. Instead, after years of futile attempts to pin criminal charges on Mr. Cohen, the investigators were coalescing around a more unusual plan: indict SAC itself.
Now the government is poised to do just that. A grand jury voted this week to approve the indictment, a person briefed on the matter said, and authorities were expected to announce the case as soon as Thursday.
Criminal charges might devastate SAC because the banks that trade with the hedge fund and finance its operations could abandon it.
Already, after several guilty pleas by former SAC employees and a series of civil actions brought by the S.E.C., the fund's investors have removed about $5 billion of $6 billion in outside money from the firm. Those that have withdrawn money include major financial industry players like the Blackstone Group and Citigroup. The exodus could accelerate when the government levels the indictment.
SAC, based in Stamford, Conn., with 1,000 employees around the world, is putting on a brave face.
“The firm will operate normally and we have every expectation that will be the case going forward,†it said in a memo to employees on Wednesday.
In recent years, as the federal government waged an unrelenting crackdown against insider trading, a major focus of its efforts was Mr. Cohen, 57, a billionaire stock picker and collector of art and real estate. Mr. Cohen was not expected to be charged criminally, though authorities were contemplating charges against other employees at SAC.
But while Mr. Cohen may not be charged, he is inextricably tied to the hedge fund that has come into the government's line of fire. Not only are his initials on the door, but Mr. Cohen also owns 100 percent of the firm he founded in 1992.
The indictment, according to the people briefed on the matter, will charge the fund with carrying out a broad conspiracy to commit securities fraud, citing several instances of insider trading. Underpinning the charge, the people say, is the theory of corporate criminal liability, which allows the government to attribute certain criminal acts of employees to a company itself.
The case is the boldest yet from the top federal prosecutor in Manhattan, Preet Bharara, whose office has overseen the crackdown on insider trading. The government has brought charges against more than 80 people; of those, 73 have either been convicted or pleaded guilty, a success rate that stands in contrast to recent struggles with cases stemming from the financial crisis.
While lower-level prosecutors have led the SAC case, Mr. Bharara has taken a more active role in recent months. In May, a person briefed on the matter said, he was on a conference call to discuss strategy with his deputies and top S.E.C. officials.
Mr. Bharara's involvement reflects the unusual nature of the case. Criminal charges against large companies are rare, given the collateral consequences for the economy and innocent employees. After the Justice Department indicted Enron's accounting firm, Arthur Andersen, in 2002, the firm collapsed and 28,000 jobs were lost.
Just days ago, the S.E.C. filed a civil case that accused Mr. Cohen of failing to supervise employees suspected of insider trading. Federal prosecutors, the people say, are planning soon to ask a judge to suspend the commission's case while the criminal charges are pending.
A spokesman for the F.B.I., Peter Donald, declined to comment. SAC also declined to comment.
Mr. Cohen reached the height of his powers in the boom years before the financial crisis. In both 2006 and 2007, Mr. Cohen earned about $900 million, according to Alpha magazine.
But during the financial crisis, Mr. Cohen's fund, like much of Wall Street, came under pressure. Much of the activity at the center of the government's case took place during that year, when the fund posted its first-ever annual loss.
In 2009, Wall Street was stunned when government authorities announced a series of criminal insider trading charges against hedge fund managers and corporate executives. In the biggest case, federal prosecutors arrested Raj Rajaratnam, the founder of the Galleon Group hedge fund.
It was around that time that Mr. Cohen's name began to surface as a target of the inquiry. Like Mr. Rajaratnam, Mr. Cohen ran a hedge fund whose traders were known for aggressively pumping corporate insiders for insights that might offer an edge.
Mr. Cohen was infuriated with the comparisons to Galleon, and went on something of a public relations offensive.
“I look at my firm, and I don't see any of that,†Mr. Cohen told Vanity Fair magazine in 2010. “In some respects I feel like Don Quixote fighting windmills.â€
Yet while Mr. Cohen was railing against the scrutiny, federal authorities were methodically building their case against the firm.
The F.B.I. began to target low-level hedge fund traders whom they would persuade to cooperate. One cooperator, Noah Freeman, a former SAC portfolio manager, said he thought that obtaining corporate secrets was part of his job description. At one point, the F.B.I. also tapped Mr. Cohen's phone line at his 35,000-square-foot home in Greenwich, Conn., the people briefed on the matter said.
Four onetime SAC employees have pleaded guilty to insider trading while at the fund; five others were implicated in conduct while at SAC.
The criminal indictment against SAC is likely to center on two employees: Mathew Martoma and Michael S. Steinberg, both of whom were charged criminally. Each pleaded not guilty to insider-trading-related charges and face separate trials.
Mr. Steinberg's case stems from trading the computer maker Dell. In a 2008 e-mail, an SAC analyst, Jon Horvath, told Mr. Steinberg that he had a “2nd hand read from someone at†Dell who provided financial information about the company before its earnings announcement. The e-mail from Mr. Horvath, who has since pleaded guilty and is expected to testify against Mr. Steinberg and SAC, was then forwarded to Mr. Cohen.
Mr. Martoma's case involves 2008 trading in the stocks of Elan and Wyeth, which at the time were developing an Alzheimer's drug. Prosecutors accused Mr. Martoma of obtaining from a doctor secret information that the drug's clinical trials were going poorly.
When the government arrested Mr. Martoma last November, the indictment cited a 20-minute phone call that Mr. Martoma had with Mr. Cohen the day before SAC began dumping its holdings in the drug stocks.
But prosecutors did not claim that Mr. Martoma told Mr. Cohen about the confidential information. And Mr. Martoma rebuffed the government's overtures to cooperate, including as recently as this spring, one person said.
Without evidence directly linking Mr. Cohen to illicit trades, the government ramped up its focus on SAC. With companies, prosecutors often file a so-called deferred prosecution agreement that suspends charges, but prosecutors never considered such a deal with SAC, the people briefed on the matter said. Instead, authorities set their sights on an indictment.
In alleging a conspiracy at SAC, prosecutors must show that there was an agreement among SAC employees - like Mr. Horvath, Mr. Steinberg and Mr. Martoma - to commit insider trading. The government also must show that the employees committed “overt†acts with “intent.â€
In using the corporate liability theory to buttress the charge, the government has another powerful weapon. If prosecutors can show that the traders were acting “on behalf of and for the benefit of†SAC when breaking the law, then they might impute liability to the firm.
An indictment would present SAC with a crucial question: How will Goldman Sachs and other banks that trade with the fund react? Legal experts said that an indictment could activate default provisions in SAC's trading agreements.
“Those provisions can effectively allow the banks to cut you off,†said Steven Nadel, a hedge fund lawyer at Seward & Kissel.
But the charges won't necessarily spell disaster for SAC. Of the roughly $15 billion that SAC managed at the beginning of the year, about $8 billion is Mr. Cohen's own money.
For now, SAC's rank-and-file are staying put, people close to the fund said. When the heightened government scrutiny alarmed SAC's traders this year, the fund offered additional financial incentives to retain employees, many of whom make millions of dollars a year.
“None of them have to worry about money or a future job,†said a senior Wall Street executive who has done business with SAC. “So they're letting this play out and seeing what happens.â€
A version of this article appeared in print on 07/25/2013, on page A1 of the NewYork edition with the headline: In Case Against Hedge Fund, a Show of Force.