Partner Gregory Wallance Discusses Possibility of Charges Against SAC’s Brokers with CNBC

August 6, 2013

CNBC reports on the recent criminal indictment of high-profile hedge fund SAC Capital. Many of Wall Street’s most prominent prime brokers have ties to SAC that could possibly result in legal action against them, such as “aiding and abetting” charges. Financial reforms under Dodd-Frank have made it easier for the Securities and Exchange Commission (SEC) to bring such charges against third parties by no longer requiring the SEC to prove that the third party knew about any securities fraud being committed. Rather, the SEC can argue that the third party did not take enough measures to detect or prevent fraud from happening in order to file charges.

According to Kaye Scholer White Collar Litigation and Internal investigations Partner Gregory Wallance, "If there was some kind of notice—a 'red flag'—that a broker should have picked up on, the SEC would have an easier time [bringing an aiding and abetting case] under Dodd-Frank.”

Wallance notes that SAC’s prime brokers have most likely already received subpoenas demanding information about any allegedly illegal trades. He continues, "In the course of an investigation, the grand jury subpoenas go out to so many people. Then they have all this information that they got. It's not that difficult to say start going through the secondary actors and let’s see if there are suspicious patterns.”

Not only have the prime brokers probably already received subpoenas, but many are now conducting internal investigations into the matter. Says Wallance, "The prime brokers are aware now of the SEC indictment. They're likely thinking: 'We'd better investigate whether we had such red flags.' If they turn anything up, they could end up going to the Department of Justice or the SEC with the information in hopes of obtaining leniency.”

Email Disclaimer