Federal prosecutors and SAC Capital Advisors cleared a legal hurdle on Wednesday after Judge Richard J. Sullivan said he would sign off on the civil portion of the hedge fund’s 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 of Federal District Court in Lower Manhattan said the case would now turn to the “main event,” a hearing on Friday 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, though, say it is highly likely that Judge 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 fine and terminate its business of managing money for clients. Other features of the deal included a five-year probation and the installation of an outside compliance monitor.
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VideoSAC’s guilty plea came after the government brought an indictment in July, a rare criminal action against a Wall Street firm. The indictment cited the guilty pleas of six former employees, and insider trading charges against two others. Preet Bharara, the United States attorney in Manhattan, called the hedge fund “a magnet for market cheaters.”
In a statement issued Monday, SAC, which had previously said it had “never encouraged, promoted or tolerated” insider trading, said it took responsibility for those who pleaded guilty and “even one person crossing the line into illegal behavior is too many and we greatly regret this conduct occurred.”
Though Mr. Cohen has not been charged criminally, federal authorities continue to view him and other SAC employees as targets of the continuing investigation. He also faces an additional civil action, filed by the Securities and Exchange Commission, which claims that he turned a blind eye to insider trading at his hedge fund.
This week, SAC told its employees that it would convert to a family office, managing only the fortune of Mr. Cohen, estimated at about $9 billion, along with the money of his family and employees. Wall Street banks like Goldman Sachs and Morgan Stanley 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, which was filed against the hedge fund alongside the indictment. That judgment is effectively reduced to $284 million because SAC gets an offset for a $616 million penalty it already agreed to pay the S.E.C. in a related case.
Despite its undercard billing, at least nine federal prosecutors attended the hearing, including Richard B. Zabel, the deputy United States attorney in Manhattan, and Lorin L. Reisner, the head of the criminal division.
For SAC, five lawyers from the law firms Willkie Farr & Gallagher and Paul, Weiss, Rifkind, Wharton & Garrison crowded around the defense table, including Theodore V. Wells Jr. from Paul Weiss and Michael S. Schachter from Willkie. Mr. Cohen did not attend the hearing.
Sharon Cohen Levin, the chief of the asset forfeiture unit of the United States attorney’s office, did all of the talking for the government. Judge Sullivan asked Ms. Levin why the deal was contingent on his approval, as such civil matters can typically be settled without a judge’s assent. She explained that the federal marshals would 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 — “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.