Judicial and Crime Victim Scrutiny of Binding Plea Agreements

In an attempt to resolve a high-profile insider trading indictment filed in July 2013, S.A.C. Capital Advisors and its related entities (SAC) entered into a binding plea agreement with the government. Under that agreement, which is subject to court approval, SAC is required to pay a cumulative fine of $1.8 billion (including $616 million previously paid to settle two parallel SEC actions), plead guilty to all five counts in the indictment, and terminate its investment advisory business. In light of the unprecedented financial penalty, coupled with the requirement that each defendant admit that at least one employee engaged in insider trading, court approval of the agreement would appear to be a foregone conclusion. U.S. District Judge Laura Taylor Swain, however, in considering the portion of the plea agreement relating to the criminal fine, decided that she would defer judgment on whether or not to accept the plea until March 2014 in order to have additional time to review the plea agreement and allow a pre-sentence report to be filed before rendering her decision.¹ Judge Swain’s decision to postpone her ruling likely stems in part from the fact that the parties presented her with a binding plea agreement under Rule 11(c)(1)(C) of the Federal Rules of Criminal Procedure. Swain can only accept or reject the binding plea agreement, and if she decides to accept the plea agreement she cannot alter the penalties imposed on SAC.

Further complicating Judge Swain’s decision is the fact that SAC’s plea agreement has come under criticism by purported victims of SAC’s alleged insider trading. These alleged victims initiated civil securities class actions related to SAC’s alleged trading in the stock of two pharmaceutical companies. These individuals opposed the plea agreement on the grounds that SAC should be required to explicitly admit to insider trading in connection with the trading of those two stocks and claimed to have standing to be heard by Judge Swain under the Crime Victims’ Rights Act (CVRA). SAC’s prosecution, thus, provides an opportunity to examine the ability of prosecutors to negotiate and secure approval for binding plea agreements that may provide less harsh penalties than if the government were to secure a victory at trial and to examine the parameters of judicial review of binding plea agreements, especially when faced with objections from purported victims.