WASHINGTON (CN) – The SEC charged hedge fund billionaire Steven A. Cohen with failing to supervise inside-trading employees at S.A.C. Capital Advisors.
The financial world has watched for months as the SEC drew rings around Cohen, 57, of Greenwich, Conn. The agency charged three employees of SAC and/or affiliates of conspiracy to commit securities fraud, and one has pleaded guilty.
Matthew Martoma, 39, of Boca Raton, was charged in December 2012 with securities fraud and conspiracy. Martoma was a portfolio manager at SAC’s wholly owned subsidiary, CR Intrinsic investors, which has, or had, $2.8 billion under management.
Michael Steinberg, 40, of New York City, was criminally charged in March this year with securities fraud and conspiracy. He was a portfolio manager at SAC’s wholly owned subsidiary, Sigma Capital Management.
Jon Horvath, 43, of San Francisco, pleaded guilty in September 2012 to securities fraud and conspiracy. He worked at Sigma and reported to Steinberg.
Cohen, whose net worth is estimated at $9 billion, essentially kept his mouth shut since the SEC began moving in on his employees. He made news in March this year when he paid $155 million for a Picasso painting, and another $60 million for a house in the Hamptons.
The SEC on Friday filed an administrative proceeding against Cohen, claiming he “failed reasonably to supervise two of his senior employees, who engaged in insider trading under his watch.”
The six-paragraph Summary of the 17-page order states: “Cohen – the founder and owner of hedge fund investment advisers that bear his initials (S.A.C.) and that until recently managed portfolios of over $15 billion – failed reasonably to supervise two of his senior employees, who engaged in insider trading under his watch.
“On at least two separate occasions in 2008, two portfolio managers who reported to Cohen obtained material nonpublic information about three different publicly traded companies. Both portfolio managers provided information to Cohen indicating that they may have had access to inside information to support their trading. Based on that information, both portfolio managers engaged in unlawful insider trading.
“In each case, 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. Cohen failed to take reasonable steps to investigate and prevent such violations. Instead, 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 while the portfolio managers traded in the portfolios they managed.
“Based on these trades, and Cohen’s failure reasonably to supervise his portfolio managers who executed the trades, Cohen’s hedge funds earned profits and avoided losses totaling more than $275 million.
“Cohen later praised one of the portfolio managers for his role in one of the trades and rewarded the other with a $9 million bonus for his work.
“Both portfolio managers have been criminally charged with insider trading. An analyst who reported to one of those portfolio managers has pleaded guilty to criminal insider trading charges.”
In addition to the three other men and the two SAC subsidiaries already mentioned, the SEC order mentions two other “relevant entities” or “persons affiliated with Cohen,” whom it does not precisely identify.
They are: “Hedge Fund Manager A [who] lives in New York, New York. From approximately 2003 to 2006, Hedge Fund Manager A was an employee of Sigma Capital and worked for Cohen. In 2006, Hedge Fund Manager A left and founded an unregistered investment adviser that SAC funded. Hedge Fund Manager A ran this investment adviser.
[And] “Portfolio Manager A [who] resides in New York, New York. Portfolio Manager A has worked at Sigma Capital since December 2006. In 2008, he managed a portfolio of approximately one billion dollars.”
The “relevant securities issuers and the insiders” are Elan Corp., Wyeth, Dell, Dr. Sidney Gilman, and “the Dell Insider.” They are not named as defendants, merely as relevant. Gilman, 80, of Ann Arbor, Mich., was a consultant to Elan and Wyeth and a paid consultant for an expert network firm, according to the SEC.
The SEC order names one other “relevant entity and persons”:
“Sandeep Goyal, age 40, lives in Princeton, New Jersey. From July 2007 to January 2012, he was an analyst for Neuberger Berman. From 2003 to 2006, Goyal was a manager of corporate planning at Dell. On November 3, 2011, Goyal pleaded guilty to one count of securities fraud and one count of conspiracy to commit securities fraud.
“Diamondback Capital Management LLC (‘Diamondback’) was an investment adviser based in Stamford, Connecticut at all relevant times. Diamondback was founded by former employees of SAC LLC. Diamondback registered with the Commission in January 2006 and served as an investment adviser to hedge funds with approximately $4 billion worth of assets under management. On December 6, 2012, Diamondback announced that it would cease investment operations and return the assets it managed to its investors.
“Jesse Tortora, age 35, lives in Pembroke Pines, Florida. From late 2007 until early 2010, Tortora was an analyst at Diamondback. Before that, he worked with Goyal at a prior employer. On May 18, 2011, Tortora pleaded guilty to one count of securities fraud and one count of conspiracy to commit securities fraud.”
The SEC demands a hearing on its order and gave Cohen 20 days to answer the allegations.
- Judge Won’t Halt Duluth Synthetic Drug Law
- Political Asylee Claims U.S. Is Following Him