SAC Capital Pleads Guilty, Then Judge Calls a Timeout

After spending the better part of a decade fighting a federal insider trading investigation, SAC Capital Advisors must wait a few extra months for closure.

The hedge fund pleaded guilty to insider trading charges at a court hearing on Friday, but the judge overseeing the case declined to give the plea preliminary approval. In a somewhat surprising move, Judge Laura Taylor Swain of Federal District Court in Lower Manhattan said she would take time to study the case and reserve judgment until March.

The show of caution does not necessarily signal trouble ahead for SAC, run by the investor Steven A. Cohen. Legal experts said they expected Judge Swain would ultimately sign off on the deal. But under the terms of the deal, if Judge Swain does balk, SAC can withdraw its guilty plea.

The hourlong hearing came days after federal prosecutors in Manhattan announced a plea deal with SAC. The deal, which would resolve a five-count indictment accusing SAC of permitting a “systematic” insider trading scheme, required the hedge fund to plead guilty to all five counts, pay $1.2 billion to the government and terminate its business of managing money for outside investors.

The case, which began with an inquiry from the Securities and Exchange Commission in 2002, represented a rare show of criminal force against a large corporation. With Friday’s guilty plea, which was entered by the firm’s general counsel, SAC became the first large Wall Street firm in a quarter-century to accept criminal charges.

Peter Nussbaum, the general counsel, noted that SAC was “paying a very steep price” for the actions of former employees. Not only is the fine a record for insider trading cases, but Mr. Nussbaum highlighted the “damage done to our business and the reputations of the good people” who work at SAC.

Still, Mr. Nussbaum said the fund accepted responsibility for the government’s accusations.

“I want to express our deep remorse for the misconduct of each individual who broke the law while employed at SAC,” said Mr. Nussbaum, who was grimacing in pain from a recent appendectomy. “This happened on our watch, and we are responsible for that misconduct.”

The guilty plea has humbled what was once one of Wall Street’s mightiest hedge funds, which at its height had more than 1,000 employees around the globe. It also colored SAC’s investing track record, which amounted to returns of 30 percent annually over the last two decades.

But in a moral victory for SAC, the government has not criminally charged Mr. Cohen, a billionaire collector of art and real estate.

Still, the F.B.I. and prosecutors continue to investigate his trading patterns. He also faces civil charges from the S.E.C., which accused him of failing to reasonably supervise employees charged with insider trading. Six of those employees have pleaded guilty and are cooperating with prosecutors. Two others are fighting the charges and will stand trial in the coming months.

The charges against the employees laid the groundwork for SAC’s indictment in July. Calling SAC a “veritable magnet of market cheaters,” prosecutors outlined the many instances in which SAC employees ran afoul of insider trading rules.

Under the law of corporate liability, the government can attribute the bad acts of employees to a company as long as the employees acted “on behalf of and for the benefit of” the company. Bolstering the indictment, the government referenced a breakdown in controls that allowed the trading to persist.

At the hearing on Friday, prosecutors outlined what would have been their case at trial. Arlo Devlin-Brown, one of the prosecutors overseeing the case, cited SAC’s “institutional indifference” to illegal trading.

With former SAC employees likely to testify at a trial, SAC chose to strike a deal. The result, after weeks of negotiating, was a steep settlement.

The $1.2 billion penalty, which includes a $900 million criminal fine and a $284 million civil forfeiture of profits, eclipses past insider trading cases. It comes on top of the $616 million SAC already agreed to pay the S.E.C. to resolve a related civil case.

Under the terms of the plea deal with the criminal prosecutors, SAC is also subject to a five-year probation and an outside monitor. Although SAC agreed to forgo managing money for outside investors, it told employees this week that it would transform into a so-called family office, managing Mr. Cohen’s roughly $9 billion fortune.

But to fully move on, SAC first needs court approval. The deal cleared one hurdle this week when Judge Richard J. Sullivan signed off on the civil $284 million payout, clearing the way for what he called the “main event,” or Judge Swain’s hearing. Judge Swain, known as a stickler for details, is now expected to rule on the plea deal when she formally sentences SAC in March.

On Friday, her courtroom was packed. At least 10 F.B.I. agents and prosecutors attended the hearing. They included Richard B. Zabel, the deputy United States attorney in Manhattan, and Lorin L. Reisner, the head of the criminal division.

While Preet Bharara, the United States attorney in Manhattan, did not attend the hearing, he alluded to the case at a legal conference earlier in the day. Noting the rarity of indicting a large company, he said that “the pendulum may have swung too far in the direction of not holding institutions accountable.”

For SAC, five lawyers from the law firms Willkie Farr & Gallagher and Paul, Weiss, Rifkind, Wharton & Garrison gathered at the defense table with Mr. Nussbaum. The lawyers included two mustachioed Paul Weiss partners, Theodore V. Wells Jr., and Daniel J. Kramer.

Mr. Nussbaum appeared to be hobbled, unable to stand for long stretches because of the appendectomy. Judge Swain inquired whether Mr. Nussbaum was doing O.K.

“All things considered,” he replied.