Tags: clawbacks, expert networks, new rules, SAC Capital, Steve Cohen
Of all the hedge funds affected by the government’s crackdown on insider trading, SAC Capital has topped the field in both fines paid and traders charged (can’t give you an exact figure at the moment but it’s “requires spreadsheets to keep track of all the cases” big). And while recognition of peerless achievement is always nice, Steve Cohen has gotten a little tired of waking up to find out another one of his employees chopped up evidence of wrongdoing and scattered it through Manhattan, or (allegedly!) sold stock based on material, non-public information passed on by friends in the medical profession.
Although one would have thought a simple “cool it with the securities fraud, you idiots” or a diagram of a foot in an ass would have sufficed re: sending a message that SAC has had it up to here with people trading in the sort of way the SEC frowns upon, apparently some hard and fast policy changes were necessary. They include:
1. Compensation clawbacks for employees “facing criminal or civil cases,” for whom the possibly of prison is not enough of a deterrent.
2. Requiring portfolio managers to get permission from compliance before taking calls with expert network analysts, after the first four freebies.
SAC Capital will implement its clawback rule starting Jan. 1, Cohen said in a letter to investors. If portfolio managers or analysts are sanctioned by regulators or found guilty on criminal charges, their compensation will be subject to recovery. If an employee departs while there is a regulatory or criminal investigation, the firm will withhold deferred payments pending the outcome. “These reforms send an unmistakable message: we have zero tolerance for wrongdoing and if you are caught breaking the rules, it will cost you,” Cohen wrote in the letter, a copy of which was obtained by Bloomberg News…SAC Capital is [also] limiting the use of any one expert-network consultant by a portfolio team to four calls a year without pre- approval from compliance, Cohen said in the letter. The hedge fund is increasing the “chaperoning” of expert-network phone calls and is adding professionals trained in medical science to its compliance group to help better analyze its health-care team’s communications, he said. Cohen said in his letter that the clawback would serve as a warning to new recruits. “We want to let job applicants know that if they do not intend to play by the rules they should not come to SAC,” Cohen wrote. The letter didn’t say whether Cohen would be subject to the provisions.
SAC Beset by Scandal Toughens Oversight With Clawbacks [Bloomberg]
SAC to Begin Clawing Back Compensation in Insider Trading Cases [Dealbook]