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Hedge Fund SAC Capital in SEC’s Crosshairs

Securities and Exchange Commission advises hedge fund it is preparing insider trading charges

By Valentin Schmid
Epoch Times Staff
Created: November 28, 2012 Last Updated: November 28, 2012
Related articles: Business » Companies
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The Securities and Exchange Commission (SEC) advised hedge fund SAC Capital that it is preparing civil charges against the firm due to insider trading allegations. Steven Cohen, the owner, tried to reassure investors on a conference call Nov. 28.

Freeman and others at SAC Capital understood that providing Cohen with your best trading ideas involved providing Cohen with inside information. -- B.J. Kang, special agent, FBI

“Mr. Cohen and SAC are confident that they have acted appropriately and will continue to cooperate with the government’s inquiry,” a SAC spokesman told Bloomberg News. SAC is based in Stamford, Conn., and manages around $14 billion in assets, including $8 billion of Cohen’s personal wealth. The company employs around 100 portfolio managers.

The SEC declined to comment on the notice it sent to SAC. The agency normally informs the public of an investigation when it formally files charges. SAC itself informed investors about the investigation on a conference call Nov. 28, according to The Wall Street Journal.

Former SAC Portfolio Manager Prosecuted for Insider Trading

A likely reason why the SEC might have enough evidence to go after SAC Capital stems from charges filed against a former portfolio manager at the firm.

The U.S. District Court for the Southern District of New York charged Mathew Martoma, who worked for SAC’s CR Intrinsic unit, with insider trading Nov. 20.

Allegedly, Martoma made $276 million for his fund by trading on insider information in pharmaceutical company Elan Corporation in 2008. Dr. Sidney Gilman, the other defendant, allegedly provided Martoma with information on clinical results of Elan’s Alzheimer’s drug, which the company was then developing.

The Nov. 20 charges mention neither Cohen nor SAC Capital, the owner of CR Instrinsic in 2008. However, Cohen often used ideas of his portfolio managers for his own trading, according to other former employees of the firm.

“At SAC Capital you were expected to provide your trading ideas to Cohen,” said ex-portfolio manager Noah Freeman, according to a Dec. 16, 2010, memo written by FBI Special Agent B.J. Kang and reported by Bloomberg News.

Bloomberg reports agent Kang wrote in his memo: “Freeman and others at SAC Capital understood that providing Cohen with your best trading ideas involved providing Cohen with inside information.”

Before charges were filed against Martoma, prosecutors charged five other ex-SAC managers in an insider trading case. The case was filed in New York in September 2012, according to Bloomberg News.

Cohen Tells Investors He Is Innocent

On the conference call with investors hosted Nov. 28, Cohen personally defended his actions, people who attended the call told The Wall Street Journal. “We take these matters very seriously, and I am confident that I have acted appropriately,” said Cohen, according to one person who attended the call.

Investors on the call also learned that Cohen has already answered the SEC’s questions about the matter. Furthermore, SAC President Tom Coheeney said during the call that the fund’s positions in Elan Corporation reflected the investment style Cohen had demonstrated previously.

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