SAC's Alleged Insider Trade Hid in Dark Pools

Tickers in this article: GS ELN NDAQ NYX

"We executed a sale of over 10.5 million ELN for four internal Hedge Fund account names at an avg price of 34.21. This was executed quietly and effectively over a 4 day period through algos and darkpools," writes the executing trader, according to the U.S. attorney's complaint.

"This process clearly stopped leakage of info from either in or outside the firm and in my viewpoint clearly saved us some slippage," the trader adds.

In spite of such large stock selling - and just days ahead of a market moving drug trial announcement - the SEC doesn't appear to have taken much notice of SAC's trading. Consider that Tuesday's charge comes over four years after the alleged trading violation and well into a multi-year insider trading probe that is the largest in U.S. history.

Were that to be the case, the newest revelations indicate that 'dark pools' are being used by hedge funds to obscure what could be illegal trading from the purview of regulators.

Dark pools are used by large traders to put out buy and sell orders without revealing their identity, thus avoid smaller traders attempting to front run their orders. More recently, venues like BATS Global Market , Direct Edge and venues owned by the New York Stock Exchange , Nasdaq and investment banks like Goldman Sachs (GS) , Credit Suisse (CS) and UBS(UBS) are considered to be a breeding ground for short term high frequency traders, who have been accused of front running actual stock buying by ordinary investors and fund managers.

To be seen is if the U.S. Attorney's allegations make it to the top of SAC Capital Management, after founder Cohen has been able to distance himself from criminal convictions and ongoing fraud probes.

Already, two former SAC Capital traders and an analyst at the hedge fund have pleaded guilty to insider trading, and a former portfolio manager Michael Steinberg has been named as an unindicted co-conspirator, but is yet to be charged.

While the SEC is still working to gain better oversight of dark pools and high frequency traders to avoid destabilizing market events, the U.S. attorney's probe against SAC Capital may yet underscore how far the agency has to go in its regulation of stock markets.

For more on high frequency trading, see why the NYSE is promoting cheaper, faster and dumber trading and why algo's love a good flash crash .

See why flash crashers are ready to feast on corn for other suspicious algorithmic trades.

-- Written by Antoine Gara in New York