E-mail, Phone Records Reveal Steve Cohen Engaged in Hedge Fund SAC Employees’ Behavior.
Billionaire hedge fund manager Steve Cohen defenders argued that the unusual structure of his firm, SAC Capital Advisors, shielded him from any illegal trading by his employees in recent years of trials.
Steve Cohen, they said, sat atop decentralized operation in which about 140 small teams were each given hundreds of millions of dollars to invest. These teams had almost complete autonomy, so if they were crossing the line, Mr. Cohen would not know about it.
But in a detailed legal filing on Friday, federal regulators made their case that Mr. Cohen was not only well aware of suspicious trading activity at SAC but participated in it. Piecing together phone records, e-mails and instant messages, the Securities and Exchange Commission’s filing painted Mr. Cohen as a boss deeply engaged in his employees’ questionable behavior.
“Faced with red flags of potentially unlawful conduct by employees under his supervision, Cohen allowed his traders to execute the recommended trades and stood by,” the S.E.C. said.
The information in the S.E.C. filing could provide additional ammunition for federal prosecutors and the F.B.I., who continue to build a criminal case against SAC. Among the actions being contemplated by the Justice Department is bringing a broad conspiracy charge against the fund itself, accusing it of multiple acts of insider trading over a period of years.
The S.E.C. case also adds detail on Mr. Cohen’s role in his firm’s buildup of large stakes in two drug makers, the subject of a separate criminal case, including the first mention of input from a former SAC employee who is now a hedge fund manager.
In an appearance last week at an investment conference sponsored by the cable news channel CNBC, Preet Bharara, the United States attorney in Manhattan, whose office is investigating SAC, refused to answer specific questions about Mr. Cohen and his firm.
But speaking broadly about hedge funds, Mr. Bharara said that some firms paid “lip service” to compliance, adding that those with multiple violations over a period of time must be held accountable. While noting that charging a company with a crime was a “rare use of power,” Mr. Bharara told the interviewer, Jim Cramer, that he was not opposed to doing so.
“I don’t see anyone that’s too big to indict,” Mr. Bharara said. “No one is too big to jail.”
The civil action brought by the S.E.C. does not accuse Mr. Cohen of insider trading or securities fraud, but with failing to supervise his employees. And it was filed not as a lawsuit in federal court, but as an administrative proceeding that will be heard by an administrative law judge at the S.E.C. If the commission prevails, possible penalties against Mr. Cohen include a permanent ban from the financial services industry.
Though the case is the first time the government has personally accused Mr. Cohen of wrongdoing, it adds to a raft of criminal and civil insider trading cases involving SAC over the last three years. Four former SAC employees have pleaded guilty; five others have been tied to illicit activity. The fund agreed this year to pay a record $616 million penalty to settle two S.E.C. lawsuits related to insider trading.