Bart M. Schwartz, a former federal prosecutor who has served as an independent monitor in a number of government investigations, will be Steven A. Cohen’s minder, if a federal judge approves.
Federal prosecutors and lawyers for Mr. Cohen have agreed on the selection of Mr. Schwartz, 67, to serve as the outside compliance consultant to oversee activities at Mr. Cohen’s investment firm as a condition of SAC Capital Advisors guilty plea to insider trading charges.
Prosecutors disclosed the choice of Mr. Schwartz in a sentencing memorandum filed on Thursday in support of the plea deal that authorities reached with SAC last November. In the deal, SAC has agreed to pay a penalty of $1.2 billion and stop managing money for outside investors.
The guilty plea by SAC is one of the most significant achievements of the federal government’s long investigation of the once-mighty hedge fund and its billionaire owner. The firm, founded by Mr. Cohen in 1992 with just $25 million, is pleading guilty to securities fraud charges, although Mr. Cohen himself is not charged with any criminal wrongdoing.
Next Thursday, Judge Laura Taylor Swain of the Federal District Court in Manhattan is scheduled to decide whether to accept SAC’s guilty plea and the deal the firm struck with United States attorney’s office in Manhattan. On Monday, Mr. Cohen is to formally rename his Stamford, Conn., firm as a family office that will manage mainly his personal fortune and will operate under the name Point72 Asset Management.
The selection of a compliance monitor, the cost of which will be borne by Mr. Cohen, had not been previously known. In picking Mr. Schwartz, the chairman and chief executive of Guidepost Solutions, a compliance and security firm based in New York, Mr. Cohen is getting an overseer with long experience in monitoring corporate compliance with government investigations.
Most recently, Mr. Schwartz and his firm were appointed to oversee Deutsche Bank’s compliance with the terms of a nonprosecution agreement after an investigation by federal prosecutors into the bank’s role in a fraudulent tax shelter scheme. He also has served as a receiver for a hedge fund that had strong ties to Bernard Madoff’s fraudulent investment scheme.
Early in his career, Mr. Schwartz was the chief of the criminal division in the United States attorney’s office in Manhattan under Rudolph Giuliani.
As a compliance monitor, Mr. Schwartz, who did not respond to requests for comment, is expected to file a series of reports to federal prosecutors to ensure that Mr. Cohen’s new firm is correcting any deficiencies he finds with its procedures to prevent insider trading.
Jonathan Gasthalter, an SAC spokesman, declined to comment on Mr. Schwartz’s appointment.
In the sentencing memorandum, federal prosecutors also said that they supported a claim by the drug maker Elan to be treated as a victim of SAC’s insider trading and seek restitution of the legal expenses it paid to comply with the investigation. Last week, Elan filed a motion seeking to recoup more than $1.5 million in legal fees that it said it had paid to comply with document requests by the federal government.
In February, a former SAC portfolio manager, Mathew Martoma, was convicted of insider trading in shares of Elan and Wyeth, which were jointly developing an drug to treat Alzheimer’s disease. The accusations of insider trading in shares of Elan and Wyeth were included in the securities fraud indictment that federal prosecutors leveled against SAC last summer.
In the sentencing memorandum, prosecutors said the investigation found that SAC analysts and portfolio managers engaged in insider trading in shares of at least 20 companies from 1999 to 2010. To date, Elan is the only company that has claimed to be entitled to restitution.
In the filing, prosecutors strongly defended the $900 million portion of the settlement that is deemed a fine. It said the fine, which is not tax-deductible, is the “largest criminal fine ever imposed in an insider trading case.†The rest of the penalty is restitution the firm agreed to pay as part of its wrongful trading.
In advance of next week’s hearing, Mr. Cohen and his associates have taken a number of steps to send a message to the judge and Preet Bharara, the United States attorney in Manhattan, that the firm has changed and will no longer be a breeding ground for insider trading. SAC said in its presentencing memorandum that it was “deeply remorseful.â€
Mr. Cohen has said the new family office, which will begin managing between $9 billion and $10 billion of mostly his own money, will remain competitive when it comes to trading stocks. But the firm â€" now with 850 employees, down from about a 1,000 last year â€" is pressing its top traders and analysts to sign two-year contracts to avoid any more defections.
