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U.S. judge puts SAC Capital civil lawsuit on hold

An exterior view of the headquarters of SAC Capital Advisors, L.P. in Stamford, Connecticut, in this picture taken December 13, 2010. REUTER
An exterior view of the headquarters of SAC Capital Advisors, L.P. in Stamford, Connecticut, in this picture taken December 13, 2010. REUTER

By Nate Raymond and Svea Herbst-Bayliss

NEW YORK/BOSTON (Reuters) - A U.S. judge put on hold a civil forfeiture lawsuit against Steven A. Cohen's SAC Capital Advisors hedge fund on Wednesday while a criminal insider-trading case moves forward.

On the same day, the firm announced a second round of retention bonuses in a bid to keep portfolio managers and analysts as SAC defends itself against the criminal charges.

U.S. District Judge Richard Sullivan in New York agreed during a hearing to a request by prosecutors to stay the proceedings on the grounds that allowing depositions and document discovery to proceed would adversely hurt the criminal case.

During the hearing Sullivan expressed concerns about "stopping this dead and starting from zero."

He agreed, however, to a delay until January 6 after a SAC Capital lawyer told him the government has handed over terabytes of material in the criminal case relevant to the civil one, ensuring it would not start from the beginning when the stay was lifted.

The civil forfeiture action was filed in July, the same day prosecutors unveiled an indictment accusing Cohen's $14 billion hedge fund with criminal responsibility for insider trading committed by employees over more than a decade.

Sullivan, who is presiding over the forfeiture action, approved a protective order in August that would allow SAC Capital to continue operating while the criminal action moves forward.

To prevent throngs of portfolio managers and analysts from walking out the door, Cohen's firm upped its bonus and compensation structure, which is already considered very generous by industry standards.

Portfolio managers working on long/short equity, macro and quantitative strategies will be paid an automatic 3.5 percent bonus next year if they commit to staying, said a source who is familiar with the fund but not authorized to speak about it publicly.

Analysts working on long/short equity funds would receive a guaranteed minimum pay of $300,000 for the year, the person said.

The increases were announced to staff on Wednesday and follow days after virtually all outside investors pulled their money from the fund at the most recent deadline on August 16. Even wealth manager Ed Butowsky, a longtime SAC loyalist, said he was forced to take his money out. "Anyone in my position has no choice," he said.

The forfeiture action accuses SAC Capital of money laundering and seeks civil penalties. Under the protective agreement, it must maintain 85 percent of the assets held by its management company.

A related proceeding by the U.S. Securities and Exchange Commission that accuses Cohen of failing to supervise two of his employees was put on hold last month.

No trial date has been set in the criminal case against SAC Capital. The next hearing is September 24.

Unlike in many cases where parallel civil and criminal cases by the government are pending, SAC Capital did not object to putting the forfeiture case on hold.

"There's just a lot of discovery to get through" in the criminal case, said Michael Schachter, a lawyer at Willkie Farr & Gallagher representing SAC Capital.

Sullivan initially appeared to resist the idea of putting the case on hold.

Micah Smith, a lawyer with the U.S. Attorney's Office in Manhattan, requested as an alternative that the judge at least delay depositions of government witnesses who had not yet testified in related criminal trials.

He also noted two potential defendants that SAC Capital might want to depose in the forfeiture case who would likely cite their Fifth Amendment right under the U.S. Constitution against self-incrimination.

The two defendants are Mathew Martoma and Michael Steinberg, who worked at SAC Capital and face separate criminal insider trading trials in November.

Smith, in arguing for the stay, also emphasized that a "great deal of documents" had already been produced in the criminal case relevant to the civil case.

"This is not a case where significant documents must be produced to have meaningful settlement discussions in the civil case," Smith said.

The case is U.S. v. SAC Capital Advisors LP, et al, U.S. District Court, Southern District of New York, No. 13-05182.

(The story corrects date in fifth paragraph to January 6 from January 3)

(Reporting by Nate Raymond and Svea Herbst-Bayliss; Editing by Jeffrey Benkoe and Andrew Hay)

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