SAC Insider Trading Trail Doesn’t Stop at $616 million Settlement

The Security and Exchange Commission (SEC) continues to investigate portfolio managers of hedge fund S.A.C. Capital in an insider trading probe. The new charge comes after a record settlement of $616 million related to insider trading at the fund.   

Things are going from bad to worse at S.A.C. Capital Advisors, a Stamford, Connecticut based hedge fund led my veteran investor Steven Cohen. At first, the company had to settle insider trading charges to the tune of $602 million with the SEC March 15.

The case was related to its CR Intrinsic unit and concerned illicit trades in drug companies Elan and Wyeth. The SEC alleged that CR Intrinsic traded on inside information about drug trials at the two companies to avoid losses. 

As it is customary with SEC settlements, the hedge fund neither admitted nor denied any wrongdoing and just paid a record fine. The responsible portfolio manager Mathew Martoma has pleaded not guilty and is awaiting trial in a Manhattan federal court.

The high penalty for SAC is only part of the problem, however. Simultaneously with the release of the news of this particular settlement, the SEC also announced it is investigating SAC’s Sigma Capital unit for insider trading in Dell Inc. and Nvidia Corp.

Jon Horvath, a former analyst at Sigma Capital, already pleaded guilty to the charges. He allegedly supplied portfolio managers at SAC with inside information about gross profit margins ahead of earnings announcements. According to the SEC, Sigma turned the recommendations into a profit of $6.4 million.

Sigma Capital also settled the charges straight away by paying a total penalty of $14 million, but two unidentified SAC portfolio managers are still under investigation.

“It’s rarely good news to be mentioned in such detailed fashion by the U.S. like this,” Anthony Sabino, who teaches law at St. John’s University in New York, told Bloomberg News.

 “Notwithstanding the settlements that SAC Capital has reached with the SEC, which are very narrow in scope, it still leaves the door wide open to further civil litigation and potential criminal prosecution for others mentioned in the SEC’s complaint,” he added.

 

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