By Nate Raymond and Emily Flitter
NEW YORK, Nov 4 (Reuters) - Steven A. Cohen is going to havea government minder as he winds down his SAC Capital Advisorshedge fund after it agreed on Monday to plead guilty in a nearlydecade-long insider trading investigation.
The provision for a compliance consultant, highlighted byprosecutors on Monday in announcing a proposed $1.2 billionsettlement and guilty plea, marked the latest instance of whathas become a growing trend of the U.S. Department of Justice requiring companies to retain outside monitors as part ofsettlements.
The consultant, who has yet to be named, could have animpact on how the future SAC conducts itself in hiring andtraining as it reviews the firm's procedures to protect againstinsider trading.
An independent monitor also will be a big change for Cohen,the 57-year-old billionaire who has a reputation for being amicro-manager and maintaining tight control over the firm hefounded 21 years ago with just $25 million.
"The department is saying in effect, it's not enough for thecompany to pay a big fine, they've got to change their ways,"said Gregory Wallance, a former prosecutor now with the law firmKaye Scholer.
Tapping monitors to oversee affairs at companies that ranafoul of the law became an increasingly common tool for theJustice Department about a decade ago as prosecutors sought toensure compliance and cut down on violations in the wake ofcorporate scandals at Enron Corp and WorldCom Inc.
Monitors in particular were a frequent feature of so-calleddeferred prosecution agreements and non-prosecution agreements,which came into vogue after the indictment and conviction ofArthur Andersen resulted in the firm's collapse and thousands oflost jobs.
Last year alone, the Justice Department required 12companies to hire monitors as part of either deferred ornon-prosecution agreements, according to data collected by thelaw firm Gibson Dunn & Crutcher.
Among those companies was Standard Chartered PLC ;Science Applications International Corporation and HSBCHoldings PLC.
In SAC's case, the firm is pleading guilty, a rare step thatManhattan U.S. Attorney Preet Bharara said reflected his beliefthat "no institution should rest easy in the belief that it istoo big to jail."
The firm will likely continue managing $9 billion of Cohen'smoney via a lightly regulated family office after the firm windsdown its investment advisory business and returns all outsideinvestor money.
Monitors are typically hired for a limited period of timeand often review policies and procedures at the company inquestion, as is happening with SAC.
Legal experts said compared to cases of the past, the scopeof the SAC monitor's duties appear limited. Lawyer StanleyKeller, who has served as a monitor in the past, said its not a"full-blown long-term independent consultant, but rather atargeted short-term focus."
"They persuaded the government they've also taken steps toremedy the deficiencies and they're going to have an independentperson come and check on what they've done," said Keller, apartner at law firm Edwards Wildman Palmer.
Under the plea agreement, SAC agreed to hire a complianceconsultant at its own expense within 10 days of U.S. DistrictJudge Laura Taylor Swain imposing a sentence.
The consultant, which must be approved by Bharara's office,would evaluate and report on SAC's insider trading complianceprocedures, including in hiring and training.
The consultant would single out any deficiencies in SAC'scompliance procedures. Within 45 days of hiring, the consultantwould report to Bharara's office describing those issues and anysteps SAC has taken to remedy them. A subsequent report would befiled within six months of the consultant's hiring describingSAC's progress, the plea agreement states.
At the consultant's discretion, a final report could beissued later about any continuing problems, the document says.
The goal, Bharara said, would be to "make sure everything isgoing as it should go at the entities during the period of theirwind down."
HSBC Holdings (HSBA)
Standard Chartered (STAN)