Tuesday 23 January 2018

US prosecutors charge SAC Capital with insider trading

Steven Cohen
Steven Cohen

Emily Flitter, Svea Herbst-Bayliss and Jonathan Stempel

US prosecutors took a double-barreled approach against hedge fund billionaire Steven Cohen yesterday, unveiling criminal fraud charges against his SAC Capital Advisors and a separate civil case seeking to freeze assets and money laundering penalties.

The actions cap a seven-year probe, and could imperil the future of SAC, a $15bn (€11.32bn) hedge fund that has posted some of the best returns in its industry and established Mr Cohen (57) as one of his generation's best traders.

SAC has already run into problems over trading in Elan's stock and shareholders in the Irish company have recently sued former SAC manager Mathew Martoma. Mr Martoma has also been indicted for insider trading and sued by the authorities. He has denied any wrongdoing.

Investors sued him, SAC and its founder Mr Cohen, claiming the hedge fund trader created a "permissive culture" that encouraged insider trading of the pharmaceutical company's stock and misappropriated material nonpublic information about an Alzheimer's drug.

Mr Cohen was not personally charged yesterday, but the very rare move by the US Department of Justice could end his career managing outside money, and suggests prosecutors and the FBI found a pervasiveness of wrongdoing at SAC.

SAC representatives were not immediately available for comment.

Many Wall Street firms that lend to and trade with SAC are likely to stop because of the criminal case, although the firm might still be able to operate because more than half of its assets belong to Mr Cohen and employees.

The indictment in US District Court in New York accused SAC and various affiliates of four criminal counts of securities fraud and one count of wire fraud.

Scheme

Mr Cohen had been charged last week in a related civil case brought by the US Securities and Exchange Commission, and said he would fight those charges.

The indictment accused SAC of "systematic insider trading" that enabled it to generate hundreds of millions of dollars of illegal profits and avoid losses. It said that the scheme ran from roughly 1999 to 2010, and was designed to boost SAC's returns and fees. Mr Cohen charges among the highest fees in the hedge fund industry.

The US government said SAC encouraged workers to relentlessly pursue an "information edge" that overwhelmed the firm's "limited" compliance systems.

"There was no meaningful commitment to ensure that such 'edge' came from legitimate research and not inside information," the indictment said. "The predictable and foreseeable result ... was systematic insider trading." (Reuters)

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