U.S. files civil charges against hedge fund founder Cohen
WASHINGTON The Securities and Exchange Commission on Friday filed civil charges against Steven A. Cohen that accused the billionaire hedge-fund manager of failing to prevent insider trading.
Cohen, 57, founded and runs SAC Capital Advisors, among the largest hedge funds, which at one point managed assets of more than $15 billion. The government has called the SAC Capital case one of the biggest insider-trading fraud cases in history.
The SEC said Cohen failed to supervise two portfolio managers at the fund and prevent them from illegal insider trading. As a result of the trades, the fund reaped profits and avoided losses of more than $275 million, the SEC said.
Both managers provided information to Cohen that suggested they had access to inside information, the SEC said. Rather than report them, he praised one of the managers for the trades and rewarded the other with a $9 million bonus, according to the SEC.
The SEC is seeking unspecified fines against Cohen and wants to bar him from managing investor funds. The case will be heard by an administrative law judge at the SEC.
"Cohen received highly suspicious information that should have caused any reasonable hedge fund manager in Cohen's position to take prompt action to determine whether employees under his supervision were engaged in unlawful conduct and to prevent violations of the federal securities laws," the SEC said.
A spokesman for SAC Capital said the allegations have "no merit" and Cohen "will fight this charge vigorously."
"Steve Cohen acted appropriately at all times," spokesman Jonathan Gasthalter said in a statement.
The SEC opted to pursue Cohen in an administrative proceeding rather than file a lawsuit against him in federal court. It could be easier for the agency to win the case before an administrative law judge on its own turf than in a civil trial. There are more lenient requirements for evidence that must be provided in an administrative proceeding. But there are also lower penalties.
"They've opted for the home court advantage," said John Coffee, a securities law professor at Columbia University.
Coffee said it is also significant that the SEC did not charge Cohen with insider trading. That suggests none of his subordinates "flipped" and told investigators that they provided Cohen with information, he said.
Portfolio managers Mathew Martoma and Michael Steinberg have each pleaded not guilty to criminal insider-trading charges. They face trials in November.
Martoma is accused of earning $9 million in bonuses after persuading a medical professor to leak secret data from an Alzheimer's disease trial between 2006 and 2008. The government has alleged that Martoma's inside information enabled other investment professionals at SAC to earn a quarter-billion dollars illegally.
Steinberg is accused of earning more than $1.4 million illegally in connection with trades involving Dell and Nvidia in 2008 and 2009.
The SEC's action against SAC Capital stemmed from the wide-ranging government investigation of insider trading at U.S. hedge funds. Earlier this year, an affiliate of SAC Capital agreed to pay $615 million to resolve the SEC's insider trading charges against the firm. The agency said it was the largest insider trading settlement ever.
Cohen is one of the highest profile figures in American finance and one of the world's richest men. He is among the handful of upper-tier hedge fund managers who pull in about $1 billion a year in compensation.