Partner Peter Haveles Weighs in on Government’s Ability to Target Fund Investors in Institutional Investor’s Alpha

Institutional Investor’s Alpha reports on the recent criminal indictment of SAC Capital Advisors on insider trading charges. In addition to the criminal charges, federal prosecutors also simultaneously filed a civil suit against the firm. The civil suit seeks forfeiture of the assets of the majority of the funds that SAC manages, which raises the question or whether or not the government can and will try to seize SAC profits that have already been distributed to the fund’s outside investors.

According to Kaye Scholer Complex Commercial Litigation Partner Peter Haveles, “the government can’t go after the investors simply by invoking the criminal charges or even the civil forfeiture complaint.” This is because the claim is specifically against the funds, as opposed to the investors. Haveles notes that “in order to enforce a forfeiture judgment against the investors, the government would have to launch a new action and try to assert a right to the distributions on the basis of ‘unjust enrichment.’”

Haveles continues, “there is a lot of uncertainty over whether the government can establish that the investors are not entitled to those distributions,” as they were earned via numerous trades that the suit does not target. He also points out that it is difficult to go after a fund’s investors because “the investors are typically structured as limited partners or limited liability companies, both of which provide the investors with limited liability.”