Is Goldman Sachs Supporting an End to Too Big to Jail?
Updated from 5:26 p.m. ET to reflect new SAC Capital statement.
NEW YORK ( TheStreet) -- Wall Street investment banks will continue to do business with Steven A. Cohen's hedge fund SAC Capital Advisors, even after the firm agreed on Monday to plead guilty to federal charges that it violated insider trading laws.
Broker-dealers that are among SAC Capital's biggest counterparties -- including Goldman Sachs
Goldman Sachs, JPMorgan, Morgan Stanley, Bank of America and Barclays declined to comment.
At issue could be the protection of outside SAC Capital investor funds and market stability. In unveiling SAC's guilty plea and a record $1.8 billion in total forfeitures and fines , U.S. Attorney Preet Bharara made a point to state that the hedge fund's investors will bear none of the settlement's costs. And the fines also aren't tax deductible.
Top executives at Goldman Sachs have already said in media appearances they have been supportive of SAC Capital even after the fund was criminally indicted for one count of wire fraud and four counts of securities fraud, in an insider trading conspiracy prosecutors alleged lasted over a decade and led to hundreds of millions of dollars in illegal profits and avoided losses.
"They have been indicted, they haven't been convicted," Lloyd Blankfein, Goldman Sach's CEO said in an interview with The New York Times in September.
But now SAC Capital has admitted criminal wrongdoing.
SAC Capital will plead guilty to every charge brought against the firm and its affiliates in July, however, individuals at the company will not receive immunity from future prosecutions, according to a letter unsealed in a U.S. District Court in New York.
In aggregate, the firm will pay a total of $1.8 billion when counting forfeitures and fines. That total amount will credit SAC Capital for a previous $616 million settlement with the Securities and Exchange Commission .
The plea agreement, which is pending approval from a New York court, will also require SAC Capital to terminate its investment advisory businesses, effectively closing the hedge fund to outside investors.
So if firms like Goldman were waiting for a conviction to make a judgment on their support of SAC Capital as a counterpart, why do they continue to trade with the hedge fund?
According to Blankfein's logic, it is to enable prosecutors like the U.S. attorney's office to conduct criminal indictments without creating undue investor losses or destabilizing the broader market.
"The government did come back and encourage us to continue to deal with firms like SAC," Blankfein said in his September interview with the New York Times . Referencing the quick failures of investment bank Drexel, Burnham & Lambert and accounting firm Arthur Andersen upon their criminal indictments, Blankfein added that those cases created a situation where "the government could never prosecute a financial firm."