Mon, Jul 22, 2013 - Page 15 News List

SEC files charges against Cohen

AP, WASHINGTON

SAC Capital Advisors founder and chairman Steven Cohen speaks at the SkyBridge Alternatives Conference in Las Vegas, Nevada, on May 11, 2011.

Photo: Reuters

The US Securities and Exchange Commission (SEC) leveled its most direct shot against billionaire hedge-fund manager Steven Cohen on Friday by filing civil charges that accuse him of failing to prevent insider trading.

The SEC alleged that Cohen, who founded and runs SAC Capital Advisors, failed to prevent two of his portfolio managers from illegally reaping profits and avoiding losses of more than US$275 million. Both managers provided information to Cohen in 2008 that suggested they had access to inside information, the SEC said. However, rather than raise any red flags, Cohen praised one of the managers and rewarded the other with a US$9 million bonus, the SEC said.

Cohen, 57, faces possible fines and could be barred from managing investor funds.

Cohen’s firm, which once managed more than US$15 billion in assets, is at the center of one of the biggest insider-trading fraud cases in history. Four employees have already been criminally charged with insider trading — two of whom have pleaded guilty. And an SAC affiliate has agreed to pay US$615 million to settle SEC charges of insider trading.

However, legal experts said the SEC’s action against Cohen on Friday suggests that the government may not have enough evidence to charge him with insider trading. And rather than seek higher penalties in a federal lawsuit, the SEC chose to bring the case against Cohen before an administrative law judge at the regulatory agency, where the legal burden of proof is lower.

“They’ve opted for the home court advantage,” Columbia University securities law professor John Coffee said.

Coffee said it is significant that the SEC did not charge Cohen with insider trading. That suggests none of his subordinates “flipped” and told investigators that they provided Cohen with information, he said.

SAC Capital spokesman Jonathan Gasthalter said the allegations have “no merit” and that “Steve Cohen acted appropriately at all times.”

Gasthalter said Cohen would “vigorously” fight the charges.

The SEC said 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.”

The managers that the SEC said Cohen failed to supervise face criminal trials in November last year. Former SAC portfolio managers Mathew Martoma and Michael Steinberg have each pleaded not guilty to insider-trading charges.

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

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