Quantcast
Latest Stories

US charges hedge fund SAC Capital



In this Thursday, Feb. 10, 2011, photo, S.A.C. Capital Partners headquarters is shown in Stamford, Connecticut. The hedge fund operated by embattled billionaire Steven A. Cohen was hit with white-collar criminal charges Thursday, July 25, 2013, that accused the fund of making hundreds of millions of dollars illegally, and a related government lawsuit said insider trading was pervasive and unprecedented at the firm. AP PHOTO/MARK LENNIHAN

NEW YORK—The hedge fund operated by embattled billionaire Steven A. Cohen was hit with white-collar criminal charges Thursday that accused the fund of making hundreds of millions of dollars illegally, and a related government lawsuit said insider trading was pervasive and unprecedented at the firm.

SAC Capital Advisors was charged in federal court in Manhattan in an indictment with wire fraud and four counts of securities fraud; prosecutors allege the crimes were carried out from 1999 through at least 2010.

Cohen himself wasn’t named as a defendant in the criminal case, but the charges could threaten to topple a firm he founded and that once managed $15 billion in assets. The charges came less than a week after federal regulators accused him in a related civil case of failing to prevent insider trading at the firm.

The government’s related civil lawsuit, which was filed against SAC on Thursday, said insider trading at the company was “substantial, pervasive and on a scale without known precedent in the hedge fund industry.”

The criminal charges said SAC’s “relentless pursuit of an information ‘edge’ fostered a business culture within SAC in which there was no meaningful commitment to ensure that such ‘edge’ came from legitimate research and not inside information.”

It added: “The predictable and foreseeable result, as charged herein, was systematic insider trading by the SAC entity defendants resulting in hundreds of millions of dollars of illegal profits and avoided losses at the expense of members of the investing public.”

The indictment said SAC carried out the insider trading scheme with a staff of numerous portfolio managers and research analysts “who engaged in a pattern of obtaining insider information from dozens of publicly-traded companies across multiple industry sectors.”

Inside info

It said SAC sought to hire portfolio managers and research analysts with proven access to public company contacts likely to possess inside information. The managers and analysts were then not questioned when they made trading recommendations that appeared to be based on inside information, the indictment said.

The problem was compounded when SAC on numerous occasions failed to use effective compliance procedures or practices designed to root out wrongdoing. The pursuit of a trading edge overwhelmed limited SAC compliance systems, prosecutors said.

A spokesman for SAC and a lawyer for Cohen did not immediately respond to messages for comment Thursday.

Last week, an SAC Capital spokesman said that the related allegations brought by the Securities and Exchange Commission have “no merit” and that “Steve Cohen acted appropriately at all times.”

SAC Capital has been at the center of one of the biggest insider-trading fraud cases in history. Four employees have already been criminally charged with insider trading, and two of them have pleaded guilty. And an SAC affiliate has agreed to pay $615 million to settle SEC charges.

Cohen, who lives in Greenwich, Connecticut, is one of the highest profile figures in American finance and one of the richest men in America. He is among the handful of upper-tier hedge fund managers on Wall Street who pull in about $1 billion a year in compensation.

The SEC alleged that Cohen received “highly suspicious information that should have caused any reasonable hedge fund manager in Cohen’s position to take prompt action to determine whether employees under his supervision were engaged in unlawful conduct and to prevent violations of the federal securities laws.”

Pleaded not guilty

An SAC portfolio manager, Mathew Martoma, has pleaded not guilty to insider-trading charges accusing him of earning $9 million in bonuses after persuading a medical professor to leak secret data from an Alzheimer’s disease trial between 2006 and 2008. Authorities haven’t disputed reports that Cohen is the “Hedge Fund Owner” repeatedly referenced in a criminal complaint against Martoma.

The papers describe how Cohen rejected the advice of his own analysts and instead bet heavily on Martoma’s tips about secret data from a study of an experimental drug. After learning through Martoma in 2008 that experiments weren’t going well, Cohen instructed his top trader to begin dumping stock, “and to do so in a way to not alert anyone else,” the papers say.

In the past, the Justice Department has been wary of bringing criminal prosecutions against entire organizations out of fear of the “collateral consequences” — that going further than fining a company could completely shut it down. The accounting firm Arthur Anderson went under after its conviction in 2002 of destroying Enron-related documents before the energy giant’s collapse — an outcome that cost tens of thousands of jobs.

U.S. Attorney Preet Bharara, in remarks last week not specific to the SAC Capital probe, alluded to the Arthur Anderson episode.

“We have a lot of power to bring cases like that and we don’t do it a lot in part because of Arthur Andersen, and part because we care about what the interest of justice requires and we care about collateral consequences,” Bharara said. “But there are circumstances in which it is appropriate to do, particularly when you have continued malfeasance over time among a large number of people.”

There are already reports that SAC’s clients are pulling their money from the Stamford, Connecticut-based firm. It’s not always an easy process: Clients usually have to give notice of at least 30 days. Hedge funds, to protect themselves from such metaphorical runs on the bank, can write into their contracts that they’ll deny withdrawal requests if too many clients want to pull out money at the same time.

In the face of mounting legal woes, Cohen has kept up his philanthropic efforts. The Steven and Alexandra Cohen Foundation, named for Cohen and his wife, recently helped sponsor a $10,000-per-table poker tournament in Manhattan that raised money for an education advocacy group.—Larry Neumeister with Christina Rexrode


Follow Us


Follow us on Facebook Follow on Twitter Follow on Twitter


Recent Stories:

Complete stories on our Digital Edition newsstand for tablets, netbooks and mobile phones; 14-issue free trial. About to step out? Get breaking alerts on your mobile.phone. Text ON INQ BREAKING to 4467, for Globe, Smart and Sun subscribers in the Philippines.

Tags: crime , Hedge Fund Charged , insider trading , SAC Capital , US



Copyright © 2014, .
To subscribe to the Philippine Daily Inquirer newspaper in the Philippines, call +63 2 896-6000 for Metro Manila and Metro Cebu or email your subscription request here.
Factual errors? Contact the Philippine Daily Inquirer's day desk. Believe this article violates journalistic ethics? Contact the Inquirer's Reader's Advocate. Or write The Readers' Advocate:
c/o Philippine Daily Inquirer Chino Roces Avenue corner Yague and Mascardo Streets, Makati City, Metro Manila, Philippines Or fax nos. +63 2 8974793 to 94
Advertisement
Advertisement

News

  • How other faiths observe Holy Week
  • No noise, partying in Boracay on Good Friday
  • More legal woes for Cedric Lee
  • NATO ups military presence amid Russian threat
  • DOH issues official statement on confirmed case of MERS-CoV
  • Sports

  • Tenacious Iran frustrates Qatar to retain Asian Club volleyball crown
  • Floyd Mayweather is ESPN’s top-paid athlete
  • Pistorius trial: Judge sets 2-week adjournment
  • China, Taiwan rout foes for 3rd, 5th places in Asian Club volleyball
  • Ginebra’s new import Freeman arrives, makes PBA return vs ROS
  • Lifestyle

  • Are your favorite malls open this Holy Week break?
  • Celebrate Easter Sunday at Buddha-Bar Manila
  • Moriones feast: A slow, steady transformation
  • Weaving ‘palaspas’ a tradition kept alive in Tayabas City
  • Finalists announced for best translated books
  • Entertainment

  • Filipino rock icons to hold silent concert
  • Mommy Dionisia Pacquiao’s greatest hits
  • Deniece Cornejo posts bail—report
  • Miley Cyrus hospitalized, cancels US concert
  • Otaku Summer Jam 2014: Summer’s hottest J-rock/Cosplay event
  • Business

  • Russian economy hit by Ukraine turmoil
  • PSEi firms up ahead of Lenten break
  • I-Remit teams up with Lakhoo for remittances from Oman
  • Megawide nets P1.4 B in 2013
  • Longer TRO sought on rate hike
  • Technology

  • Smart phone apps and sites perfect for the Holy Week
  • Tech company: Change passwords or suffer ‘Heartbleed’
  • Filling the digital talent gap
  • SSS to shut down website for Holy Week
  • Another reason to quit social media this Holy Week: your safety
  • Opinion

  • We may never know
  • Couple of things
  • Mommy D’s magic
  • Stop bizarre and bloody Good Friday rituals
  • Holy Week taboos
  • Global Nation

  • Netizens welcome Japan’s visa-free travel plan
  • Visa-free travel by Filipinos to Japan still a proposal
  • Visa-free travel to Japan could boost tourism
  • 2 PCG men ordered arrested over Balintang Channel shooting
  • US Embassy closed on Holy Thursday, Good Friday
  • Marketplace