As federal authorities bore down on the hedge fund SAC Capital Advisors, its owner, Steven A. Cohen, assured his army of traders that the investigation would not affect its business.
On Tuesday, for the first time, SAC’s top brass acknowledged that the insider trading case has exacted a serious toll.
SAC said it would shut down its London office by year end. With more than 50 people, the London office is one of the firm’s largest offices outside of its Stamford, Conn., headquarters. In addition, the fund cut six portfolio managers based in the United States, according to an internal memo sent to employees.
“As our negotiations with the government have unfolded, it has become clear to us that the outcome the government is demanding is likely to have a greater than first anticipated impact on the firm,†Tom Conheeney, SAC’s president, wrote in the memo.
He added: “We have concluded that we must operate as a simpler firm and reduce our capital allocations.â€
SAC employed more than 1,000 people in 10 offices across the globe at the start of the year. According to a recent regulatory filing, it still had 950 on staff, a number that is expected to drop more after year-end bonuses are paid.
“This was not something we had been contemplating,†Mr. Conhenney said, adding that the firm did not anticipate further job cuts this year.
An SAC spokesman, Jonathan Gasthalter, declined to comment beyond the memo.
The moves add to a steady retrenchment that began at SAC in July when federal prosecutors announced an indictment of the firm and accused it of engaging in insider trading on an unprecedented scale. Six former SAC employees have pleaded guilty to insider trading; two others â€" Michael S. Steinberg and Mathew Martoma â€" are set to stand trial in the coming months.
Mr. Cohen and his lawyers are now in the throes of negotiating a settlement with the government. A plea deal is expected to include requiring SAC to plead guilty to criminal misconduct, agree to stop managing outside money and pay more than $1 billion in penalties, a record for an insider trading prosecution.
Since the July indictment, departures have accelerated from SAC, which managed about $15 billion at the start of the year. Now, with virtually all of its outside clients pulling their money, the firm will be left to manage Mr. Cohen’s fortune, estimated at about $9 billion.
While resignations have picked up, SAC has quietly retrenched over the course of the year. Among those that have left the firm are Anil Stevens and Glenn Shapiro, managers of the SAC unit Parameter Capital. The fund closed its Chicago office last January. Most recently, Lia Forcina, a portfolio manager in London who managed about $750 million for SAC, left for the giant hedge fund BlueCrest Capital Management.
The scaling back is bad news for banks and their bottom line. SAC’s aggressive trading style, combined with its immense buying power, made the fund one of the top commission payers on Wall Street.
At its peak, including borrowings, SAC had more than $50 billion in assets under management, and paid out hundreds of millions in dollars of trading commissions each year. It has also been a top client of the so-called prime brokerage units of bank like Goldman Sachs and Morgan Stanley, which have provided financing services to the fund.
The fund, which has returned almost 30 percent annually, net of fees, over two decades, was up about 13 percent at the end of last month.
“You have done a great job this year under extraordinarily trying circumstances,†wrote Mr. Conheeney in the memo on Tuesday. “I don’t know another group of professionals who could have done as well as you have under the conditions we have endured during the past two years.â€
