SAC’s $1.2 Billion Settlement Clears a Judicial Hurdle

One down, one to go.

Federal prosecutors and SAC Capital Advisors cleared a legal hurdle on Wednesday after Judge Richard J. Sullivan said he would sign off on part of the hedge fund’s historic insider trading guilty plea and roughly $1.2 billion penalty.

“I’m satisfied to the extent my review is required and I’m not sure that it is,” said Judge Sullivan. “There is sufficient basis to approve the settlement.

Judge Sullivan said the case would now turn to the “main event,” a hearing on Thursday before Judge Laura Taylor Swain on the $900 million criminal fine. In an unusual feature of the settlement, if she rejects the deal, SAC can withdraw its guilty plea. Legal experts say it is highly likely that Judge Taylor Swain will approve the agreement.

On Monday, federal prosecutors announced that SAC, owned by the billionaire stock picker Steven A. Cohen, agreed to plead guilty to criminal insider trading charges, pay a record financial penalty and terminate its business of managing money for clients. Other features of the deal including a five-year probation and the installation of an outside compliance monitor.

The guilty plea came after the government brought an indictment in July, a rare criminal action against a Wall Street firm, calling SAC “a magnet for market cheaters.” The indictment cited the guilty pleas of six former employees, and insider trading charges against two others.

Mr. Cohen has not been charged criminally but federal authorities continue to view him and other SAC employees as targets of the continuing insider trading investigation. He also faces a civil action filed by the Securities and Exchange Commission alleging he turned a blind eye at insider trading at his hedge fund.

This week, SAC told its staff that it would convert to a family office, managing only the fortune of Mr. Cohen, estimated at about $9 billion, and his employees. Wall Street banks have continued to trade with the fund despite its admission that it was a corrupt organization.

During Wednesday’s 15-minute hearing, Judge Sullivan said he would ratify a $900 million judgment against SAC in the government’s civil money laundering lawsuit against the hedge fund. That judgment is effectively reduced to $284 million because SAC gets an offset for the $616 million penalty it already agreed to pay federal securities regulators in a related case.

Wednesday’s hearing was attended by at least nine federal prosecutors from the United States attorney’s office in Manhattan, including Richard Zabel, the deputy United States attorney, and Lorin Reisner, the head of the criminal division.

For SAC, five lawyers from the law firms Willkie Farr & Gallagher and Paul, Weiss, Rifkind, Wharton & Garrison showed up, including Martin Klotz from Willkie and Theodore V. Wells Jr. from Paul Weiss.

Sharon Cohen Levin, the chief of the office’s asset forfeiture unit, did all of the talking for the government. Judge Sullivan asked Ms. Levin the deal was contingent upon his approval, as such a civil matter can typically be settled without a judge’s signing off. She explained that the federal marshals will not accept the money for the government’s civil forfeiture fund without a court order.

To which Judge Sullivan said: “Even if it’s that big a check?”

Away from the trading floor, Mr. Cohen is busy this month selling numerous pieces of artwork from his celebrated collection at the Christie’s and Sotheby’s auctions. On Tuesday night at Christie’s, the first of his works was up for sale â€" “Mann und Frau (Umarmung),” a gouache by Egon Schiele from 1917 depicting a naked couple in a hot embrace.

The piece, expected to sell for $5 million to $7 million, went unsold without a bid.

Carol Vogel contributed reporting.