Cohen’s SAC Career Faces End as SEC Presses Supervision

(Bloomberg) Billionaire hedge-fund manager Steven A. Cohen faces an attempt by U.S. regulators to force him out of business for failing to supervise two employees charged with insider trading.

The Securities and Exchange Commission yesterday presented new details that it said showed Cohen received “highly suspicious” information that should have caused any reasonable hedge-fund manager to investigate the basis for trades made by Mathew Martoma and Michael Steinberg. Cohen, 57, ignored red flags and allowed illegal trades that earned profits and avoided losses of more than $275 million, the SEC said in an administrative proceeding.

“Hedge-fund managers are responsible for exercising appropriate supervision over their employees to ensure that their firms comply with the securities laws,” Andrew Ceresney, co-director of the SEC’s enforcement division, said in a statement. “After learning about red flags indicating potential insider trading by his employees, Steven Cohen allegedly failed to follow up to prevent violations of the law.”

If its proceedings are successful, the SEC said it would seek to bar Cohen, who boasts one of the best long-term track records in history, from managing money for investors. The move could effectively end his hedge-fund career even though the SEC isn’t pursuing insider-trading claims against him personally.

SAC, based in Stamford, Connecticut, oversees $15 billion, about 60 percent of which is money from Cohen and employees. Cohen hasn’t been charged criminally despite a multiyear probe by the U.S. attorney’s office in Manhattan and the Federal Bureau of Investigation.
Unsurpassed Record

Cohen, whose net worth is estimated at about $9 billion by the Bloomberg Billionaires Index, has returned 25 percent a year in his funds since founding his firm in 1992 -- after taking half of the profits in fees -- a record unsurpassed by any other equity hedge-fund manager.

“The SEC’s administrative proceeding has no merit,” Jonathan Gasthalter, a spokesman for SAC, said in a statement. “Steve Cohen acted appropriately at all times and will fight this charge vigorously. The SEC ignores SAC’s exceptional supervisory structure, its extensive compliance policies and procedures, and Steve Cohen’s strong support for SAC’s compliance program.”

The SEC moved against Cohen four months after his firm agreed to pay $616 million to settle a complaint of insider trading by Martoma and Steinberg, without admitting or denying wrongdoing. At least nine current and former employees of SAC have been linked to insider trading while working at the firm.
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