After five years under investigation for insider trading, Steven Cohen is considering proposing a deal to prosecutors that would shut his $15 billion hedge-fund firm to outside investors, according to a person familiar with his thinking. Cohen has discussed an agreement under which his SAC Capital Advisors LP would admit wrongdoing but wouldn’t be prosecuted unless it broke the law again, said the person, who asked not to be named because the talks are private. As part of the deal, known as a deferred prosecution agreement, Cohen would close the Stamford, Connecticut-based firm to outside investors and make it a family office that manages his personal fortune. SAC Capital probably would also pay fine. [Bloomberg]
Steve Cohen is just an appeals court ruling away from fulfilling his most deeply held desire: to pay $602 million to settle allegations of insider-trading whose veracity he does not accept. Read more »
The Only Thing Mathew Martoma’s Ex-Lawyer Has To Work On In The Run-Up To The Summer Is His Base TanBy Bess Levin
Another intriguing development in the insider trading investigation centered on SAC Capital in a week already overflowing with them: Mathew Martoma is replacing his defense lawyer. The move immediately raises questions about whether Martoma plans to change his strategy, which, so far, at least, could be characterized as: fight without giving an inch…His former attorney, Charles Stillman, of Stillman & Friedman, is known as a spirited fighter. Martoma is replacing him with Richard M. Strassberg of Goodwin and Proctor, a much larger firm that has secured some victories in defending insider trading cases…Strassberg could not be reached for comment. “The young man made a decision, I wish him well,” Stillman said Thursday, explaining that his life had changed quickly, now that he wasn’t bracing for a possible summer trial. “We have a house in the Berkshires, and we’re talking about redoing our deck,” he said. “So the day this happened, I called my wife and said, ‘Call the contractor, it’s time to finish the deck!’” [BusinessWeek]
A judge has pumped the brakes on this thing. Read more »
SAC Capital Advisors LP executives told investors Monday that its settlements with securities regulators, in which the hedge-fund firm agreed to pay a record $616 million penalty to end two insider-trading cases, was a difficult decision that will help it move forward. On a conference call with clients, SAC President Tom Conheeney cautioned that the two agreements with the Securities and Exchange Commission wouldn’t mark the end of the regulatory scrutiny that has shrouded the firm in recent years. The settlements, Mr. Conheeney said on the call, are “an important first step.” But, he added, “I don’t want to leave you with the thought that this means everything is cleared up.” [WSJ, earlier]
So Mathew Martoma: pretty bad investment for SAC, no? He “was unable to generate … winning trades or outsized returns in 2009 and 2010, and did not receive a bonus in either of those years. In a 2010 email suggesting that Martoma’s employment be terminated, an [SAC] officer stated that Martoma had been a ‘one trick pony with Elan.’” Now we know what the trick was – it was insider trading! – and it looked like a good one in 2008 anyway, making SAC some money on the way up, saving it $276 million by selling out just before Elan announced negative drug trial results, and earning Martoma $9.3 million in what turned out to be his last bonus at SAC.
SAC Capital Advisors LP, the hedge fund run by billionaire Steven A. Cohen, will pay a record $614 million to settle U.S. regulatory claims that two of its affiliates made illegal trades using nonpublic information. CR Intrinsic Investors agreed to pay more than $600 million — the most ever in an insider-trading case — and Sigma Capital will forfeit about $14 million, the Securities and Exchange Commission said in a statement today. Cohen hasn’t been accused of wrongdoing. “This settlement is a substantial step toward resolving all outstanding regulatory matters and allows the firm to move forward with confidence,” Jonathan Gasthalter, a spokesman for SAC Capital, said in an e-mailed statement. “We are committed to continuing to maintain a first-rate compliance effort woven into the fabric of the firm.” [Bloomberg]
SAC Capital Advisors will pay out about $660 million next month to investors who had requested withdrawals amid concerns the hedge-fund firm will face mounting legal and regulatory scrutiny, people familiar with the plan said. Clients had until Thursday to inform SAC if they wanted to withdraw money from the Stamford, Conn.-based firm this quarter. The people said investors asked to redeem about $1.7 billion from SAC. The remaining withdrawals will be paid out over the course of 2013, the people said. “As we have been saying, the redemptions will have no significant impact on our funds,” a SAC spokesman said in a statement Friday. [WSJ]
The once-proud firm, which could blithely charge three-and-50 with a dismissive shrug of the shoulders or a penetrating, “you’ve got a lot of fucking nerve to question me” glare, has suffered indignities ranging from a snub from Citigroup (Citigroup!) to begging and coughing up extra cash to hang on to employees to pleading with clients to stick with it through the hard times, even as it continues to post double-digit returns. Now, it’s having Japanese banks turn up their noses at a once-in-a-lifetime, too-good-to-be-true opportunity to get a little piece of the Big Guy’s pie. Read more »
SEC Insider Trading Investigation Reveals SEC Is Really Good At Insider Trading Investigations, AnywayBy Matt Levine
Sheelah Kolhatkar’s cover story today in Bloomberg BusinessWeek about the SEC’s hunt to capture Steve Cohen is pretty amazing, and depending on your priors will leave you impressed or infuriated or both with the SEC. I vote both, but I always vote both.
The core of it is the story of how Sanjay Wadhwa, a senior enforcement lawyer at the SEC, got a tip from FBI agent B.J. Kang “that something big might have gone down during the summer of 2008 at SAC Capital,” though “It’s not clear whether Kang was motivated by information or intuition.” This nebulous tip led Wadhwa to research all previous SEC referrals about SAC. One that he found was a “multipage [September 2008] letter from NYSE Regulation … [that] said that someone from RBC Capital Markets had pointed out evidence of a market-moving information leak about Elan. ‘If there was a leak of information,’ the letter read, ‘it was probably during the ICAD [International Conference on Alzheimer’s Disease] conference,’ when doctors and investors would have been mingling and socializing.” Good tip!
This thesis turned out to be incorrect, but the letter did prompt the SEC to launch one of its largest investigations. It would end up issuing 140 subpoenas and amassing 2 million pages of documents as it built a case that kept leading in the direction of SAC Capital. … They tried to piece together an explanation for the astonishing amount of money SAC had made trading Elan. … The initial stages involved painstaking work: The firm’s trading records were a jumble of activity with nothing broken out. It was also difficult to discern which of SAC’s 900 employees they should focus on. …
After sifting for months through every phone call to SAC from anyone connected to Elan, the SEC team pinpointed Martoma and his source, a neurologist and Alzheimer’s expert named Dr. Sidney Gilman, who worked as a consultant to hedge funds through Gerson Lehrman. … As they tracked Martoma further back in time, a pattern emerged: Over the course of 2007 and 2008, Martoma and Gilman had spoken every time an Elan safety monitoring committee held a meeting.
Eventually they brought the case to prosecutors who arrested Martoma. Given the public information – mostly from the SEC and prosecutors at this point, but still – it’s pretty easy to believe that the SEC and prosecutors have Martoma dead to rights; Gilman has told prosecutors that he gave Martoma tons of inside information and Martoma then traded on it. So this really is – apparently – the story of a dogged team of investigators pursuing a thin lead and, through long hours of rigorous detective work, actually catching a criminal. Not Steve Cohen, but someone one level removed from him.
That is impressive. It’s hard dogged work; I am depressing myself just thinking about reading phone records for months on end. They get points for, like, the pure arete of it.
But it also sucks, doesn’t it? Read more »