DealBook: Prosecutors Looking at Steven Cohen’s Account

Reuters Steven A. Cohen

Trades made for an account of Steven A. Cohen, the founder of the hedge fund giant SAC Capital, have come under scrutiny as part of the government’s sweeping investigation into insider trading on Wall Street.

Court filings in the case of one of two former SAC portfolio managers who were charged with insider trading show that among the government’s list of documents produced in its investigations was the two managers’ ” ‘Tagged’ trading into the Cohen account.”

In other words, those are records of trades suggested to Mr. Cohen by the two former managers, according to someone briefed on the matter. There are no details about the substance or timing of the trades. (The April 8 filing is below.)

The Wall Street Journal, first reported the reference to the trading records,

The two managers are Donald Longueuil, 35, who pleaded guilty to conspiracy and securities fraud last month, and Noah Freeman, 35, who has also pleaded guilty and is cooperating with the government.

There is no sign that the trades suggested to Mr. Cohen by Mr. Longueuil and Mr. Freeman were based on illegal inside information.

And neither Mr. Cohen nor SAC has been accused of any wrongdoing. When the portfolio managers were arrested in February, SAC said it was “outraged” by the conduct of Mr. Longueuil and Mr. Freeman.

But the latest development threatens to further ensnare SAC, a $12 billion hedge fund that is one of the most powerful players in the stock market, in the insider trading investigation.

Others with SAC ties have been swept up in the government’s pursuit.

Richard Choo-Beng Lee, who worked at an SAC unit, pleaded guilty in 2009 to insider trading stemming from activity after he left the hedge fund. And two hedge funds started by former SAC executives — Level Global Investors and Diamondback Capital Management — were raided by the Federal Bureau of Investigation in January. No one at those funds has been accused of wrongdoing and each firm says it is cooperating.

The examination of Mr. Cohen’s account is certain to add to the questions about the culture and practices of SAC.

The hedge fund is different than many other funds, in that its portfolio managers work independently, each making investments that are relatively small. The hedge fund is different than many other funds, in that its portfolio managers work independently, each making investments that are relatively small. Traders there are incentivized to give their best ideas to Mr. Cohen.

In entering his guilty plea, Mr. Longueuil said he received illegal stock tips from 2006 to last year. Winifred Jiau, a former employee of Primary Global Research, an expert network firm, is accused of being the source of an illegal tip to the portfolio manager. She has pleaded not guilty to conspiracy charges.

Longueuil Exhibit

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