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SAC to Begin Clawing Back Compensation in Insider Trading Cases

As SAC Capital continues to face pressure over federal insider trading investigations, the hedge fund wants to assure investors that it’s blameless.

And to stress its point, the firm plans to bolster its compliance practices, according to a letter to investors sent by founder Steven A. Cohen.

“Like you, we have been buffeted for many months by news of SAC employees who have pleaded guilty to, or have been accused of, insider trading,” Mr. Cohen wrote in the letter, which was reviewed by DealBook. “We have endured speculation that somehow this conduct is acceptable to the firm, its senior management and to me. It is not, nor has it ever been.”

Perhaps the most notable move is the firm’s institution of clawbacks for the deferred compensation of employees facing criminal or civil cases. Should an employee leave SAC during an investigation, his or her payouts will be withheld. If the case leads to sanctions or other punishments, the compensation will not be paid out.

It is one of several moves that the hedge fund hopes will lift a cloud of suspicion off it in the wake of several prominent arrests, including that of a senior SAC executive, Michael S. Steinberg.

Here are the other moves it will make to tighten its safeguards against trading violations:

  • The hedge fund plans to increase its compliance staff by 25 percent this year, to about 45 employees. The firm said that five years ago, it had 10 employees in the department.
  • It plans to ban SAC staff from meeting with public company employees, save for senior management and investor relations officials, for official business without prior approval.
  • The use of a member of an expert network â€" which have been at the heart of several recent insider trading cases â€" will be limited to four phone calls a year without permission from compliance officials.

“Our reforms are no panacea - it is not possible to stop someone intent on breaking the law - but these reforms send an unmistakable message: we have zero tolerance for wrongdoing and if you are caught breaking the rules, it will cost you,” Mr. Cohen wrote.

News of the letter was reported earlier by Bloomberg News.