SAC Indictment- Whats Next in the Case Against Hedge Fund

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SAC Indictment- Whats Next in the Case Against Hedge Fund

Hedge Fund SAC Indictment- Whats Next in the Case  Against SAC.

Steve-Cohen-SACThe indictment of hedge fund SAC Capital Advisors and three of its internal hedge fund companies on Thursday.

Steve Cohen, 57, purchased a 4% stake in the Mets last year after team owners paid $162 million to settle claims they willfully ignored the Ponzi scheme orchestrated by Bernard Madoff.
He founded SAC Capital in 1992 and turned it into one of the  Wall Street’s largest hedge fund with $15 billion of assets under management.
Cohen — who owns mansions in Connecticut and East Hampton, and a $115 million East Side penthouse — has about $9 billion invested in his company.
John Coffee, a professor at Columbia University Law School, said fleeing investors will make it hard for SAC to stay afloat.

“In the case of a hedge fund, I think it’s difficult to have any relationship with investors once you’ve been indicted,” said Coffee. “There are just too many clouds on the horizon for any public investor to stay with them.”
The feds stopped short of freezing SAC’s assets to prevent it from immediately going under, throwing hundreds of employees out of work and causing a swoon in the market.
SAC officials said they will fight.

In the 41-page indictment filed yesterday, prosecutors alleged that Cohen and his top managers sought to hire traders and analysts who had the ability to deliver any kind of “edge” over the market.



Some examples from the government’s indictment that accuses the hedge fund of responsibility for illegal insider trading:

“The guy who knows the quarters cold, has a share house in the Hamptons with the CFO of (a Fortune 100 industrial sector company), tight with management.”

Internal Nov. 2008 write-up about an unidentified portfolio manager candidate that was forwarded to SAC Capital chief Steven Cohen.

Generates investment ideas by “mining his industry contact network for datapoints.”

Internal due diligence report for Jon Horvath, who pleaded guilty last year to conspiracy and securities fraud for insider-trading violations while working at SAC Capital affiliate Sigma Capital Management. Horvath e-mailed Cohen a 2007 trading recommendation about Sun Microsystems that said, “my edge is contacts at the company and their distribution channel.”

“I suspect the line about contacts at the company may wake up some of our legal eagles.”

Former portfolio manager Michael Steinberg’s internal warning message to Sigma Capital’s chief operating officer about the message from Horvath. Steinberg has pleaded not guilty to insider-trading charges and is awaiting trial.

cohen-steinbergMichael Steinberg – Another SAC Capital Guy Tied to Insider Tradin


Michael Steinberg is the fifth person from hedge fund SAC Capital tied to insider trading case. SAC Capital Advisors LP.

Has health care “industry contacts beyond management ” including through two expert networking firms and a personal “network of doctors in the field.”
Internal due diligence report for Mathew Martoma, a former SAC Capital portfolio manager charged with trading on insider information. He has pleaded not guilty and is awaiting trial.

Mathew Martoma

Mathew Martoma, a former portfolio manager at a unit of SAC Capital Advisors LP

Known for being part of an “insider-trading group” at another hedge fund.

Private warning to Cohen in 2008 from an employee of Citadel, the other hedge fund, about Richard Lee, who previously worked at that fund. Cohen decided to hire Lee anyway, “overruling objections of SAC Capital’s legal department,” the indictment charged. Lee pleaded guilty to insider-trading charges this week.

Citadel confirmed Lee had worked there and was terminated for misconduct related to improper use of a pricing methodology. “Citadel does not have, and never has had, an insider-trading group,” the fund said.


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Take Richard Lee, who joined the Stamford, Connecticut-based hedge fund from Citadel LLC in April 2009 even though prosecutors claim SAC had been warned by one of Lee’s former colleagues that he was suspected of insider trading at Citadel. Lee pleaded guilty on July 23 to two counts of insider trading, both of which occurred at SAC in 2009.

The indictment also cites the examples of Jon Horvath, a former research analyst at SAC who pleaded guilty to insider trading last September, and Mathew Martoma, who has pleaded not guilty to charges that he engaged in insider trading.

In an e-mail cited in the indictment, Horvath justified his recommendation that SAC invest in Sun Microsystems Inc. in October 2007 by saying, “My edge is contacts at the company and their distribution channel.”

As for Martoma, whose trial is scheduled to begin in November, SAC hired him, according to prosecutors, in part because of his “industry contacts beyond management” in the pharmaceutical field.

He’s accused of using tips from a doctor who had access to information on drug trials to recommend Cohen sell his stake in two drug companies, helping SAC make $276 million. It’s the biggest insider trading case in U.S. history, prosecutors said.

“The relentless pursuit of an information ‘edge’ fostered a business culture within SAC in which there was no meaningful commitment to ensure that such ‘edge’ came from legitimate research and not inside information,” the indictment says.

U.S. Attorney Preet Bharara, in announcing the charges, said “SAC deliberately encouraged the no-holds-barred pursuit of an ‘edge’ and literally carried over the edge into corporate criminality.”

Hedge Fund Billionaire Steve Cohen Faces Charges for Failing to Supervise SAC Emplayees



SAC said in a statement that it “has never encouraged, promoted or tolerated insider trading and takes its compliance and management obligations seriously.”

The way prosecutors saw it, according to the indictment, was that in pursuing that edge, “The predictable and foreseeable result, as charged herein, was systematic insider trading by the SAC entity defendants resulting in hundreds of millions of dollars of illegal profits and avoided losses at the expense of members of the investing public.”

Through 2008, at the least, SAC used to tout its funds to potential investors by promising an “edge” on the marketplace, according to promotional materials.

By 2011, Cohen himself had soured on the word, according to a deposition given in a civil case. Asked whether he used the word “edge” at SAC, Cohen replied: “I hate that word.”

After reading how many times it’s used in his indictment, he may hate it even more.

The case is U.S. v. SAC Capital Advisors LP, 13-00541, U.S. District Court for the Southern District of New York (Manhattan).


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