As you may have read in the papers, the government is currently hard at work trying to prove that employees of certain hedge funds on Wall Street are guilty of insider trading. A bunch of firms have been raided, some arrests have been made, friendships have been destroyed, and a few shops have been forced to shut their doors. The Feds’ little song and dance, experts have noted, appears to be part of a larger attempt to nail one man in particular. Some of you know him as ‘Steve,’ others as ‘my liege’ and others still as ‘Dad.’ To us, he’s simply ‘The Big Guy.’
For the government, the BG would represent the be all, end all. Their Big Kill. They don’t know that he’s actually done anything wrong but, god damn, they feel it, down in their plums. So they’ve cranked up the pressure, investigating and tailing and hauling in for questioning anyone who’s ever come within 100 feet of SAC Capital, be it former employees, the guy who cuts the grass or a delivery boy who once dropped off an order of sandwiches and therefore must have dirt, he’s just gotta. So far though, they’ve turned up nada. For some reason– some might call it innocence, but the FBI prefers not to use such a dirty word– the BG keeps coming up clean.
Should they be unable to actually bag Cohen legally, the Feds would probably be just as happy to simply set off a chain of events that caused SAC to go down for the dirt nap. As hedge funds live and die by their investors’ willingness to put up money, redemptions on account of fear-inspiring headlines could do the trick. Unfortunately, the government failed to take into account who they’re dealing with here.
For other funds, the lack of evidence wouldn’t matter– the suggestions of impropriety would be enough. Investors would see the fund’s name in the paper in the same headline in which the words ‘insider trading’ appear and that would be it. Investors in FrontPoint partners, for example, redeemed en masse after the the healthcare fund saw its name in the press due to its association with a French doctor who allegedly passed one of its managers some hot tips. No one was never actually charged with any wrongdoing but the redemptions forced FrontPoint to liquidate the $1.5 billion fund. Investors in Level Global, one of the three funds raided in November, similarly asked for their money back, effectively shuttering the place. And those with Diamondback have so far requested $1.3 billion in withdrawls. But such has not been the case for SAC and why is that? Because unlike other funds, which apparently need to include a ‘no pussies’ clause and a forewarning that any stories of possible illegality set off an immediate gate, SAC investors have balls.
According to Reuters‘ Matthew Goldstein and Svea Herbst-Bayliss, the Big Guy’s investors have not only had the sac(k)s necessary to deal with a few unsavory headlines, but they’ve begged for more.
As one money manager who knows Cohen observed, SAC Capital’s mostly wealthy individual investors appear to have a high tolerance for negative headlines, as long as the fund keeps generating better than average returns and Cohen himself isn’t charged…In fact, over the past two years, the hedge fund has attracted some $2 billion in new money from investors, said a person familiar with SAC Capital — despite countless news stories about the investigation. The money has kept pouring in even after a lawsuit filed by Cohen’s ex-wife revealed that securities regulators questioned him in an insider trading investigation some 25 years ago.
There is nothing you can put in these people’s faces that will make them flinch. Bat-shit insane ex-wives crying insider trading? Associations with traders who’ve pleaded guilty to putting material non-public information to use? Sodomy by whiteboard marker? That’s all you’ve got? Child, please.
Anyone looking to put money to work in this industry should be taking notes.
Is Steve Cohen The Fed’s Moby Dick [Reuters]