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DealBook: S.E.C. Charges Are Latest Test for Steven Cohen

July 20, 2013 by NewsMaker Leave a Comment

Steve Marcus/ReutersSteven A. Cohen, the owner of SAC Capital Advisors, is accused of failing to supervise former employees who face criminal charges.

10:18 p.m. | Updated

After a long-running investigation into insider trading at the hedge fund SAC Capital Advisors, an inquiry that has produced several guilty pleas and a record $616 million civil penalty, the government on Friday brought a case for the first time against the fund’s billionaire owner, Steven A. Cohen.

In a civil action, the Securities and Exchange Commission accused Mr. Cohen of failing to supervise former employees who face criminal charges. The case, filed as an administrative proceeding at the agency rather than a lawsuit in federal court, contends that he ignored “red flags” that should have led him to investigate suspicious trading activity at SAC and take steps to prevent illegal conduct. If the S.E.C. prevails in its action against Mr. Cohen, there are a range of possible penalties, including assessing additional fines, barring Mr. Cohen from managing money for clients, or banning him from the financial services industry for life.

Although the case stops short of accusing Mr. Cohen of fraud or insider trading, it represents the first government action brought directly against him after an inquiry that has persisted for nearly a decade.

DealBook: SAC Capital Manager Arrested in Insider Trading Case

March 29, 2013 by NewsMaker Leave a Comment

Federal agents have arrested a SAC Capital Advisors portfolio manager, the most senior employee at the giant hedge fund ensnared in the government’s vast insider trading investigation.

Michael Steinberg, 40, was arrested at his Park Avenue apartment early Friday morning and taken out of his building in handcuffs. He has worked for SAC and its owner, the billionaire investor Steven A. Cohen, since 1997 and became one of the firm’s senior portfolio managers, focusing on technology stocks.

Steven Cohen of SAC Is Fascinating to Investigators, Too

December 22, 2012 by NewsMaker Leave a Comment

From the outside, there’s nothing particularly special about this address, 72 Cummings Point Road. But inside — well, everyone on Wall Street has heard the stories.

Some of them are even true.

We are, after all, talking about the man known on the Street as “Stevie” — hedge fund magnate, multibillionaire, prodigious art collector and, of late, person of intense interest to federal authorities. Inside his offices, vast fortunes are won and lost. Careers are made and unmade. Type-A egos are inflated and crushed, sometimes in the space of hours. And there, Mr. Cohen, a trader with an almost preternatural knack for reading fear and greed in the marketplace, prowls relentlessly for an edge over everyone else.

Mr. Cohen, 56, today sits at the center of more concentric circles of money and power and worry and suspicion than perhaps anyone else in the hedge fund game. Neither he nor the private investment firm that bears his initials, SAC Capital Advisors, has been accused of wrongdoing. But over the past half-decade, as a vast federal investigation into insider trading has unfolded in stunning detail, the questions have returned again and again. In soft-carpeted executive suites, on fervid trading floors, in Park Avenue co-ops and on Connecticut back lanes, the same subject keeps coming up: Just what is going on inside 72 Cummings Point Road?

It is, perhaps, understandable. On Wall Street, Mr. Cohen is envied and feared in equal measure. Hedge fund managers like him have helped redefine what it means to be rich, even if most ordinary people don’t quite understand what they do or how they do it.

For years, the investigations had swirled around SAC, but that was about all. Then, on the afternoon of Nov. 28, the word went out across Wall Street: the Securities and Exchange Commission was warning that it might go after SAC, too. Elsewhere in the investigations, prosecutors have turned up damning evidence through F.B.I. wiretaps and reached into the boardrooms of some of the mightiest corporations. Seventy-one people have been convicted in a sweep that dwarfs the 1980s-era Wall Street scandals involving Ivan Boesky and Michael Milken.

But there is also this undeniable fact: The government inquiry has linked six former SAC employees to insider trading while at the fund; three have pleaded guilty. On Friday, a grand jury indicted Mathew Martoma, a former employee who was arrested last month on charges that he used inside tips about a clinical drug trial to help SAC earn profits and avoid losses totaling $276 million. (A lawyer for Mr. Martoma says his client is innocent.) In the Martoma case, prosecutors for the first time have tied Mr. Cohen to questionable trades.

And, of course, there are the stories. The mind-boggling investment returns. The office tantrums. The pressure-cooker environment inside SAC. The time that Mr. Cohen’s wife, Alexandra, gave him an A.T.M. for Christmas, because he kept borrowing cash from her. The time she gave him an Aston Martin sports car for his birthday, and he promptly sold it.

All of those are true.

But there are other stories, too, like the one about how Mr. Cohen engaged in insider trading back in the 1980s, before hedge funds like SAC burst onto the scene. That claim was made by Mr. Cohen’s former wife, in a 2009 lawsuit in which she sought $300 million. A judge dismissed her claims as little more than rumor and speculation.

And then there is the one about how Mr. Cohen and a cabal of other hedge fund managers waged a campaign of dirty tricks in the early 2000s to sink the share prices of several companies. Judges tossed out those cases, too. (SAC maintained that the various lawsuits were groundless, and one of the companies ended up issuing an apology.)

Mr. Cohen declined to be interviewed for this article. But a spokesman for SAC reiterated what the firm has been saying all along: SAC and Mr. Cohen acted appropriately.

Friends stand by Mr. Cohen. Several point to his charitable works.

Article source: http://www.nytimes.com/2012/12/23/business/steven-cohen-of-sac-is-fascinating-to-investigators-too.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: insider trading, sac capital advisors, stunning detail

News Analysis: Case Casts a Shadow on a Hedge Fund Mogul

November 23, 2012 by NewsMaker Leave a Comment

Steve Marcus/ReutersEvidence in a criminal case suggests that Steven A. Cohen of SAC Capital Advisors participated in trades that the government says illegally used insider trading information.

In 2010, the billionaire hedge fund manager Steven A. Cohen gave a rare interview to Vanity Fair. He said that he wanted to combat persistent rumors that his firm, SAC Capital Advisors, routinely violated securities laws by trading on confidential information.

“In some respects I feel like Don Quixote fighting windmills,” Mr. Cohen said at the time. “There’s a perception, and I’m trying to fight that perception.”

Federal prosecutors only heightened that perception on Tuesday, bringing a criminal case against a former SAC employee in what Preet Bharara, the United States attorney in Manhattan, who brought the charges in Federal District Court in Manhattan, called the most lucrative insider trading scheme ever charged.

And for the first time, the evidence suggests that Mr. Cohen participated in trades that the government says illegally used insider information — though prosecutors have not said that Mr. Cohen himself knew the information was confidential, and he has not been charged.

Any prosecution of Mr. Cohen would most likely hinge on the cooperation of Mathew Martoma, the former SAC employee charged in the case. Mr. Bharara said in the charges that Mr. Martoma obtained secret data from a doctor about clinical trials for an Alzheimer’s drug being developed by the companies Elan and Wyeth. The information enabled SAC to avoid losses of almost $194 million on the stocks, which it sold and then bet against, reaping $83 million in profit — a total benefit to the firm of more than $276 million. SAC executed the trades shortly after Mr. Martoma e-mailed Mr. Cohen and said he needed to discuss something important.

As to Mr. Cohen’s potential culpability in the case, the crucial issue is what Mr. Martoma told Mr. Cohen that led SAC to quickly dump $700 million worth of stock. Did he provide his boss details on why he had turned sour on Wyeth and Elan? Specifically, did he share the leak about the drug trial’s negative results and identify the source of the secret information? Through a spokesman, he said he was confident he had acted appropriately.

It appears, for now, that Mr. Martoma will fight the charges. But the crucial question, as it relates to Mr. Cohen, is whether at some point Mr. Martoma will reverse course, admit to insider trading and agree to help the government build a case against his former boss. Without Mr. Martoma’s cooperation, it is unlikely that the prosecutors have enough evidence to charge Mr. Cohen.

“This has all the markings of a case where the government goes after the smaller fish and then pressures them to flip so they can get the whale,” said Bradley D. Simon, a criminal defense lawyer and former federal prosecutor in New York.

The government has several weapons for its effort to persuade Mr. Martoma to agree to a plea, including the stiff sentences for insider trading. Under the federal sentencing guidelines, Mr. Martoma could receive more than 15 years in prison, a term that could be reduced — or avoided altogether — if he agreed to testify against Mr. Cohen.

F.B.I. agents arrested Mr. Martoma, 38, early Tuesday morning at his home in Boca Raton, Fla., a nearly 8,000-square-foot Mediterranean-style mansion on the grounds of the elite Royal Palm Yacht and Country Club. He lives there with his wife, a pediatrician, and three children. A graduate of Duke University and Stanford University’s business school, Mr. Martoma is expected to make an appearance in Federal District Court in Manhattan Monday morning.

Described by a former colleague as low-key and cerebral, Mr. Martoma is one of scores of traders who have earned millions of dollars working under Mr. Cohen and feeding him their best investment ideas. He joined SAC in 2006. In 2008, the year he participated in the alleged illegal trade, the firm paid Mr. Martoma a $9.3 million bonus. But SAC fired him in 2010 after two years of subpar performance.

Charles A. Stillman, a lawyer for Mr. Martoma, said on the day of his arrest, “What happened today is only the beginning of a process that we are confident will lead to Mr. Martoma’s full exoneration.”

It is no secret that the government has been circling Mr. Cohen since the middle of last decade, when it began its crackdown on insider trading, an investigation that has resulted in more than 70 criminal charges. Prosecutors have already linked five former SAC employees to insider trading while at the fund — securing three convictions — though none of those cases connected Mr. Cohen to any illicit activity. But the complaint filed on Tuesday puts Mr. Cohen at the center of the supposed improper conduct.

Mr. Cohen, 56, is a legend on Wall Street, having amassed a multibillion-dollar fortune by posting phenomenal investment returns averaging about 30 percent over the last two decades. Starting with a $25 million grubstake, SAC now manages about $13 billion and has 900 employees across the globe. Mr. Cohen has also emerged as a major force in the art world, owning an eclectic collection that includes works by Picasso, Warhol and Cézanne.

Prosecutors have constructed their case against Mr. Martoma, and increased the pressure on him, by securing the cooperation of Dr. Sidney Gilman, the doctor who supposedly leaked to him the Alzheimer’s drug’s trial data. The case against Mr. Martoma will depend largely on Dr. Gilman’s credibility as a witness.

Dr. Gilman, 80, a neurologist at the University of Michigan medical school, was hired by Elan and Wyeth to monitor the trial’s safety, which gave him access to secret information about the results. SAC retained Dr. Gilman as a consultant and paid him about $108,000.

At first, Dr. Gilman’s reports on the trial’s progress were positive, and SAC built a position in the two drug makers worth approximately $700 million, according to prosecutors. But then, on July 17, 2008, Dr. Gilman told Mr. Martoma that there were problems with the drug, the government said.

A few days later, Mr. Martoma e-mailed Mr. Cohen that he needed to discuss something “important,” and the two then spoke for 20 minutes, according to court filings. Over the next four days, at Mr. Cohen’s direction, SAC Capital jettisoned its entire position in the two stocks and then placed a big negative bet on the drug makers, the government said.

On July 30, after disclosure of the poor trial results, shares of Elan and Wyeth sank. According to the prosecutors’ calculations, SAC would have lost about $194 million had it kept the stock; taking a short position instead generated profits of about $83 million.

Dr. Gilman and the Justice Department have entered into a nonprosecution agreement under which he will cooperate in exchange for not being criminally charged.

Thus far, any potential evidence against Mr. Cohen is entirely circumstantial. The government’s complaint includes e-mails about secretly selling the Elan and Wyeth shares through esoteric methods like algorithms and dark pools. But that is common practice among large, sophisticated funds that do not want to alert competitors or move the stock too much. Moreover, while SAC dumped its large positions in the two stocks quickly — raising the question of what prompted it to do so — Mr. Cohen is known for a rapid-fire trading style. He frequently moves aggressively in and out of stocks while processing gobs of information fed to him by his underlings.

It would be difficult for a jury to infer anything incriminating just from the way these trades were executed.

The government in this case also lacks the powerful wiretap evidence that it has used to convict dozens others, including Raj Rajaratnam, the head of the Galleon Group. Federal agents did wiretap Mr. Cohen’s home telephone for a short period in 2008, according to a person with direct knowledge of the investigation who spoke only on the condition of anonymity. But it is unclear whether the eavesdropping, which was first reported by The Wall Street Journal, yielded any fruit.

Even without incriminating wiretap evidence, the government has brought cases that rely almost entirely on witnesses testifying against their bosses.

One of those cases is now under way in federal court in Manhattan. Prosecutors are currently trying the former hedge fund portfolio managers Anthony Chiasson of Level Global Investors and Todd Newman of Diamondback Capital Management. Prosecutors say that the two were part of a conspiracy that made about $68 million illegally trading technology stocks.

The outcome of that trial is expected to depend largely on whether the jury believes the testimony of two cooperating witnesses who admitted to the conspiracy — Spyridon Adondakis and Jesse Tortora, former junior analysts at Level Global and Diamondback. The two say they shared secret information with the defendants. Defense lawyers have attacked the witnesses’ credibility, accusing them of lying to avoid prison.

That case, too, has strong ties to SAC. Mr. Chiasson and his co-founder were star traders under Mr. Cohen before starting the now-defunct Level Global. And the owners of Diamondback are both former SAC employees; one is Mr. Cohen’s brother-in-law, Richard Schimel. Diamondback, which continues to operate, has not been accused of wrongdoing.

“SAC’s extraordinary profits have always been something of a market mystery,” said Sebastian Mallaby, the author of “More Money Than God,” a book on the history of hedge funds. “As more and more lawsuits implicate former SAC traders, we may at last understand where SAC’s profits came from.”

Article source: http://dealbook.nytimes.com/2012/11/22/new-trading-case-casts-a-deeper-shadow-on-a-hedge-fund-mogul/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: hedge fund manager, insider trading information, sac capital advisors

DealBook: F.B.I. Makes Insider Trading Arrests

January 18, 2012 by NewsMaker Leave a Comment

Federal authorities are seeking to arrest Anthony R. Chiasson, co-founder of the Level Global hedge fund, the latest development in the the government’s aggressive investigation of insider trading.

Two others, including hedge fund manager Todd Newman, were arrested on Wednesday morning as part of the case, and the Federal Bureau of Investigation plans to arrest another person later in the day, said a person briefed on the matter.

Federal Bureau of Investigation agents went to Mr. Chiasson’s apartment in Manhattan to arrest him on Wednesday morning but he was not home, the person briefed on the matter said. He is said to be negotiating a surrender for later on Wednesday.

Mr. Chiasson founded Level Global with David Ganek in 2003. Both had previously worked at Steven Cohen’s hedge fund, SAC Capital Advisors.

Level Global shut down last year in the wake of a November 2010 raid by federal agents.

The United States attorney’s office in Manhattan, led by Preet S. Bharara, has won 50 insider trading convictions over the last two years, the most prominent being last year’s conviction of hedge fund titan Raj Rajaratnam.

Article source: http://feeds.nytimes.com/click.phdo?i=6b70a10b76e07b5530289350e429bc16

Filed Under: Business News Tagged With: federal agents, global hedge fund, sac capital advisors

DealBook: An Investor Creates a Tempest in a Coffee Cup

October 18, 2011 by NewsMaker Leave a Comment

Herb Swanson/Bloomberg NewsGreen Mountain’s headquarters in Waterbury, Vt. The company employs almost 5,000.

When shares of Green Mountain Coffee Roasters began trading on Monday morning, they held the distinction of being the best-performing stock on a major exchange over the last five years.

Better than Apple. Better than Google. Better than Starbucks.

Then David Einhorn began speaking.

Mr. Einhorn, who became famous after making big and vocal bets against Lehman Brothers before that firm’s collapse, took the podium at an investor conference in Manhattan and denounced Green Mountain as an overhyped and overvalued stock. He unveiled a 110-page slide presentation called “GAAP-uccino” — a wonky pun referencing generally accepted accounting principles — that detailed his negative view.

Within minutes, the company’s shares began to sink. Green Mountain stock dropped more than 13 percent during Mr. Einhorn’s talk before closing at $82.50, down 10.4 percent on the day.

Graphic: Soaring Price of Green Mountain Coffee

A spokeswoman for Green Mountain declined to comment, citing the Vermont company’s so-called quiet period before its earnings release later this month.

Since October 2006, Green Mountain’s shares have increased more than thirtyfold. Put another way, $1,000 invested in Green Mountain five years ago is today worth about $30,000, according to data provided by Thomson Reuters. After Monday’s swoon, its shares’ five-year performance now ranks second, just slightly behind Questcor Pharmaceuticals.

Still, Green Mountain has a market value of $12.6 billion, making it worth more than large food conglomerates like Sara Lee and ConAgra. It has made Robert Stiller, the founder of Green Mountain, a billionaire and the richest man in Vermont. It has been one of the best-performing stocks for a number of large hedge funds, including JAT Capital and SAC Capital Advisors.

But it has also brought out the short-sellers. As Green Mountain shares have risen ever higher, a group of skeptical investors have bet against Green Mountain. Many of the short-sellers absorbed large losses as the stock continued to spike in value.

Peter Foley/Bloomberg NewsDavid Einhorn called Green Mountain stock overvalued.

Mr. Einhorn, who runs the hedge fund Greenlight Capital, criticized Green Mountain for “poor transparency.” He attacked the company’s financials, accusing it of “shenanigans” in how it accounts for acquisitions. The company had previously disclosed a Securities and Exchange Commission inquiry into its accounting practices. Mr. Einhorn also decried what he called out-of-control capital spending that he said was growing much faster than the company’s business.

The battleground over Green Mountain stock centers on the “K-Cup.” In 2006, Green Mountain, a company perhaps best known for delivering a decent cup of coffee at the local gas station, acquired Keurig, a business that manufactured single-cup brewing systems. The Keurig machine brews individual cups in less than a minute from coffee packed into single-use, plastic K-Cup pods.

Last year, more than 85 percent of Green Mountain’s $1.36 billion in revenue came from sales of single-use pods and their brewing systems.

The coffee giants Dunkin’ Donuts and Starbucks have recently joined Green Mountain’s Keurig craze. Each has agreed to sell its own branded K-Cups manufactured by Green Mountain. Dunkin’ Donuts has already begun selling its K-Cups in its stores; Starbucks is expected to start later this year.

Mr. Einhorn pooh-poohed the idea that K-Cups have revolutionized the way Americans drink coffee. He noted that drinking single-serve cups is “the expensive way to drink coffee at home.”

“This is a luxury item that is priced outside the range of many households,” he said.

What is more, Mr. Einhorn said, Green Mountain’s patent on K-Cup technology will expire in about a year, which will open the business to competitors.

Several Wall Street analysts who follow the company disagreed with Mr. Einhorn, whose Greenlight fund is down about 5 percent this year.

“There is not a single argument that Einhorn presented today that couldn’t have been made or wasn’t made a year ago when the stock was at $30 per share,” said Mitchell B. Pinheiro, an analyst with Janney Capital Markets, who has followed the company since 1997 and has a $125 price target on Green Mountain shares.

“This is a real trend and you can prefer to stick your head in the sand and ignore it, but Keurig growth remains strong and will continue.”

Regardless of where the company’s shares end up, Green Mountain’s growth over the last decade has been a bright spot in a weak economy.

The company was founded in 1981 by Mr. Stiller, who made his first fortune a decade before by starting E-Z Wider, a maker of cigarette rolling papers. He tried a cup of coffee at a Vermont ski resort and liked it so much that he bought the roastery and began Green Mountain Coffee Roasters.

He based the company in Waterbury, Vt., the same town where Ben Jerry’s ice cream started. Today, Green Mountain employs nearly 5,000 and pushes a corporate social responsibility platform. The company donates 5 percent of its pretax profits to social and environmental causes.

The stunning price appreciation of Green Mountain’s stock has made Mr. Stiller a billionaire. He appeared this year for the first time on Forbes magazine’s list of the richest Americans. At Monday’s closing price, he and his family own shares worth $1.9 billion. Earlier this year, Mr. Stiller, now a Florida resident, bought a pied-à-terre in Manhattan, purchasing the Upper West Side apartment of Tom Brady, the New England Patriots quarterback, for $17.5 million.

Other longtime senior officers have also become very rich. Frances G. Rathke, the company’s chief financial officer and former C.F.O. at Ben Jerry’s, cashed out about $32 million worth of Green Mountain shares for which she had paid $500,000.

Yet around Waterbury, which suffered severe damage as a result of Hurricane Irene, there are few signs of conspicuous consumption. Old Subaru wagons crowd the Green Mountain company parking lot, many of them sporting tattered “Obama ’08” and “Howard Dean” bumper stickers.

Chad Fry, the general manager of the Reservoir restaurant and taproom, a favorite haunt of Green Mountain employees, said that his customers did not seem to focus on the stock price.

“Let’s put it this way,” said Mr. Fry, pointing toward a television playing college football highlights. “No one’s asked me to change the channel to CNBC.”

Article source: http://feeds.nytimes.com/click.phdo?i=219de7f04dfd2ca1a9e1bc007b7b7964

Filed Under: Business News Tagged With: conagra, questcor pharmaceuticals, sac capital advisors

DealBook: Ex-SAC Trader Calls Defendant’s Insider Tips ‘Perfect’

June 7, 2011 by NewsMaker Leave a Comment

Michael C. York for The New York TimesWinifred Jiau insisted on gifts of lobster, Noah Freeman testified.

8:07 p.m. | Updated

Winifred Jiau, a Silicon Valley technology worker, was known to most of her peers as Winnie.

But across the country on Wall Street, three young, successful hedge fund traders nicknamed her “the Poohster,” a not-so-subtle reference to the fictional bear.

On Monday, one of those hedge fund traders, Noah Freeman, testified that “the Poohster” provided him and two friends with “absolutely perfect” information about coming earnings announcements from technology companies.

Ms. Jiau is on trial in Federal District Court in Manhattan on charges of passing secret corporate information to Mr. Freeman and others. She is a former consultant at Primary Global Research, a so-called expert network firm that connects Wall Street traders to industry experts, including public company employees. These firms are a focus of the government’s vast investigation into insider trading at hedge funds.

If convicted, Ms. Jiau faces up to 25 years in prison.

Mr. Freeman is a main cooperating witness in the case against Ms. Jiau. He not only gave the government information about Ms. Jiau that led to her arrest, but also provided the authorities with evidence that led to the conviction of his two fellow traders and former friends, Donald Longueuil and Samir Barai. The three traders have all pleaded guilty to insider trading crimes.

A former trader at Sonar Capital and SAC Capital Advisors, Mr. Freeman said that he and his co-conspirators paid Ms. Jiau about $120,000 a year for illegal stock tips that earned him and his funds tens of millions of dollars in trading profits. Ms. Jiau, a former employee at Taiwan Semiconductor and Nvidia, had deep contacts inside a number of semiconductor companies.

Still, “despite her information being very, very accurate, she was very difficult to work with,” said Mr. Freeman, 35, a Harvard graduate. Neither of his former employers has been accused of any wrongdoing.

Among the issues he said that he had with Ms. Jiau: she could be rude, she was hard to contact and she often canceled meetings at the last minute. But a focus of his testimony Monday was on Ms. Jiau’s persnickety behavior regarding the gifts that Mr. Freeman and his co-conspirators lavished on her.

In addition to the cash compensation, Mr. Freeman gave Ms. Jiau presents, including three iPhones. He also said the traders bought her a gift certificate to a clothing boutique “that we canceled at her request and replaced with a $300 gift certificate to the Cheesecake Factory.”

And then there were the lobsters. In November 2007, Ms. Jiau asked Mr. Freeman, who was based in Boston, for 12 lobsters. She wanted to serve them on Thanksgiving.

“I remember this because it was an unusual time to serve lobsters,” said Mr. Freeman, who mentioned that he had a family home in Maine.

A prosecutor then showed Mr. Freeman an e-mail that he had sent to his secretary with the subject line, “Can you please send lobsters to Winnie?”

“I know you hate her but we have to do this,” he wrote.

“Sure thing,” the secretary, Annie Gallin, replied. “I hope she gets sick from the lobsters.”

“Me too (but not dying, just suffering),” Mr. Freeman responded.

Ms. Gallin dutifully sent a dozen lobsters from the Fresh Lobster Company in Gloucester, Mass., across the country to Ms. Jiau, who lives in Fremont, Calif. But there was a slight problem.

“Typical Winnie to leave 12 lobsters to die at FedEx,” Ms. Gallin wrote in a follow-up e-mail. “She has no heart.”

She did, however, like to serve lobster on the holidays. The next month, Ms. Jiau asked for another dozen lobsters for Christmas, a request with which Mr. Freeman dutifully complied.

In his testimony, Mr. Freeman also said he circumvented compliance rules at SAC Capital that prohibit its traders from talking to employees of public companies when he struck a compensation arrangement with Ms. Jiau.

The news that SAC had a specific ban against discussions with public company employees comes amid a flurry of negative headlines about the hedge fund. Federal authorities are investigating trading by Steven A. Cohen, the billionaire investor who heads the fund, as well as the fund’s trading surrounding a number of large mergers-and-acquisitions announcements.

Mr. Freeman also testified that SAC terminated him in January 2010 because of poor performance. “My financial results were not as good as they expected them to be,” he said.

Article source: http://feeds.nytimes.com/click.phdo?i=d9b237d758d95fdae585c2a5efcea598

Filed Under: Business News Tagged With: earnings announcements, sac capital advisors, stock tips

DealBook: Ex-SAC Capital Trader Aided Insider Inquiry

June 4, 2011 by NewsMaker Leave a Comment

Craig Ruttle/Associated PressFederal District Court in Manhattan.

A former portfolio manager at the hedge fund SAC Capital Advisors testified in federal court on Friday that he had provided investigators with the names of more than a dozen individuals when he confessed to insider trading.

Noah Freeman, the former portfolio manager, told a jury that he sat down with law-enforcement officials at the end of last year and told them about crimes that he and others had committed.

“How many people did you tell the government about?” asked Avi Weitzman, a federal prosecutor.

“At least, in passing, more than a dozen,” responded Mr. Freeman, 35, a tall, athletic-looking Harvard College graduate. He did not identify whom he had discussed with the government.

He did tell the jury that trading on illegal stock tips at Sonar Capital, the hedge fund he worked at before joining SAC, was part of Sonar’s business model.

Mr. Freeman took the witness stand in Federal District Court in Manhattan in the trial of Winifred Jiau, a former consultant at a so-called expert network firm, which connect money managers with industry experts, including public company employees, for a fee.

Federal prosecutors have charged Ms. Jiau with knowingly facilitating the passing of secret information about technology businesses to hedge fund traders.

One of those traders was Mr. Freeman, a main government witness in its case against Ms. Jiau.

His testimony came about six months after two F.B.I. agents stopped him in the parking lot of the Winsor School, an elite private school in Boston, and played a tape recording of him, Ms. Jiau and another hedge fund manager exchanging confidential information.

Mr. Freeman left SAC in January 2010, and the hedge fund industry altogether, and was teaching an advanced economics course at the school. He no longer teaches there.

Mr. Freeman, who has pleaded guilty, faces up to 25 years in prison. But by helping the government gather evidence, he hopes to obtain a lesser sentence. Mr. Freeman’s cooperation helped federal prosecutors bring criminal charges against not only Ms. Jiau, but also three other hedge fund employees who were part of Mr. Freeman’s insider trading ring. The hedge fund employees — Donald Longueuil, formerly of SAC Capital; Samir Barai of Barai Capital Management; and Jason Pflaum, a colleague of Mr. Barai — have all pleaded guilty. Dressed in a dark suit, white shirt and red Hermès tie, Mr. Freeman spent only a little more than an hour on the witness stand before Judge Jed S. Rakoff dismissed the jury until Monday.

In that short time, he laid out for the jury his 10-year career. After a stint as a consultant at Bain Company, he said he joined Brookside Capital, the hedge fund arm of Bain Capital Partners, the Boston private equity firm. From there he moved to Sonar Capital, also a Boston hedge fund, where he said he spent three-and-a-half years.

Mr. Freeman said that he had no trading authority at Sonar but worked as an analyst gathering research and providing investment ideas to Neil Druker, the head of the fund. He said that trading on inside information at Sonar “was regularly employed as part of our business model.”

Neither Sonar nor Mr. Druker has not been charged with any wrongdoing. Mark Hyland, a lawyer for Sonar, said: “Freeman turned out to be a rogue, dishonest employee who acted without authority and deceived Sonar Capital. Freeman now continues his pattern of deception by falsely seeking to implicate others at Sonar in the hopes of obtaining a lighter sentence for his own criminal acts.”

It was at Sonar that Mr. Freeman said he had met Ms. Jiau. He testified that Ms. Jiau had provided him with the “complete financials” for the technology companies Marvell Technology Group and Nvidia, before they were publicly announced. The information, he said, was “extremely” helpful.

He left Sonar in early 2008 to start the Boston office for SAC, the giant Stamford, Conn.-based hedge fund run by the billionaire investor Steven A. Cohen. Mr. Freeman said that at SAC he had day-to-day trading authority and at his peak oversaw about $300 million of the fund’s money.

His testimony about his work at SAC was cut short when the trial broke for the day.

SAC has not been charged. A spokesman for the firm previously said Mr. Cohen had been “outraged” by Mr. Freeman and Mr. Longueil’s conduct.

To defuse a potential line of questioning on cross-examination, Mr. Weitzman, the prosecutor, asked Mr. Freeman about his past drug use.

He said he had smoked marijuana regularly for 10 years but stopped in late 2008. He also conceded using mushrooms once, in spring 2009.

“Only once,” he reiterated. “It was a terrible experience.”

Article source: http://feeds.nytimes.com/click.phdo?i=2e14d208d360704d98b14ff36bb7e770

Filed Under: Business News Tagged With: dozen individuals, expert network, sac capital advisors

DealBook: Insider Trading Cases Stain Hedge Fund Manager’s Reputation

May 7, 2011 by NewsMaker Leave a Comment

Minh Uong/The New York Times

Steven A. Cohen, the once-secretive billionaire hedge fund manager, is suddenly everywhere.

On Monday, Mr. Cohen and his wife attended the Metropolitan Museum of Art’s annual Costume Institute gala, where they rubbed elbows with the rock star Mick Jagger and the quarterback Tom Brady. On Wednesday, he is scheduled to speak, before former President George W. Bush, at a prominent hedge fund conference in Las Vegas. Earlier this year, he made his first trip to Davos, Switzerland, for the World Economic Forum, where he could be seen dancing the night away at a private party.

And Mr. Cohen is bidding to buy a large stake in the New York Mets from the team’s owners.

Behind the scenes, life has not been nearly so fun.

Federal prosecutors are examining trades made in an account run by Mr. Cohen at SAC Capital Advisors, his hedge fund in Stamford, Conn., that manages about $12 billion, according to a government filing. The trades were suggested by two SAC portfolio managers who have pleaded guilty to insider trading-related crimes. The charges are part of a vast investigation into insider trading at hedge funds by the United States attorney in Manhattan that has resulted in criminal cases against at least 47 people over the last two years.

Meanwhile, Senator Charles E. Grassley, Republican of Iowa, asked the Financial Industry Regulatory Authority in a letter on April 26 to provide information on “potential scope of suspicious trading activity” at SAC.

For years, Mr. Cohen’s firm has been beset by persistent whispers of a cowboy culture that often walked up to the line, if not over it, while generating stupefying returns, minting scores of millionaire traders and making Mr. Cohen a billionaire many times over.

Earlier this year, those whispers became louder when one of the SAC portfolio managers, Noah Freeman, admitted trading on illegal tips about publicly traded companies while working for Mr. Cohen and agreed to cooperate with the government’s investigation, leading to questions about whether Mr. Cohen himself and the firm could become ensnared.

Rick Maiman/Bloomberg News Donald Longueuil, a former portfolio manager at SAC Capital, who pleaded to insider trading charges.

The other SAC portfolio manager, Donald Longueuil, pleaded guilty last week.

“The striking thing about SAC has always been its extraordinary performance in the absence of any identifiable special sauce,” said Sebastian Mallaby, the author of “More Money Than God,” a book published last year on the history of hedge funds. “Charges like these cast doubt on the legitimacy of the fund’s investment process.”

Neither SAC nor Mr. Cohen has been accused of any criminal wrongdoing and the firm is cooperating with the government’s investigation. The government’s interest in Mr. Cohen’s trades was reported earlier by The Wall Street Journal.

Unlike many hedge funds that are controlled by one portfolio manager who makes all the investment decisions, SAC is decentralized; 142 small teams are each given control over hundred of millions of dollars to invest. Mr. Cohen attracts talented, ambitious traders because he offers to pay each team as if they run their own fund — without having to raise money and run a business.

“He’s giving them a lot of autonomy — that’s the pitch,” said a former employee who asked for anonymity because he did not want to harm his relationship with Mr. Cohen. “Do I think the fish stinks at the head of SAC? No. But does the business model make it challenging to keep bad people from doing bad things? Yes.”

The firm’s unusual balkanized structure could ultimately insulate Mr. Cohen from any insider trading allegations. Most of the firm’s traders invest on their own with little direct input from Mr. Cohen, who manages less than 10 percent of the fund’s capital. The two SAC portfolio managers who pleaded guilty to insider trading worked in two different satellite offices — Boston and Manhattan — and had little contact with Mr. Cohen in the two years they worked at the firm.

Mr. Cohen, 54, who grew up in Great Neck, N.Y., on Long Island, spends most of his day either at his desk in the middle of an expansive trading floor in what feels like a domed football stadium or in his corner office, where he has an array of therapeutic devices for his bad back, including a massage table. From his desk, filled with computer screens, he manages his own portfolio, focusing primarily on health care, energy and industrial stocks. (He rarely trades technology stocks, which are the center of the government’s vast investigation into insider trading at hedge funds.) He also monitors the firm’s trading and with the flick of a switch can be piped in by video to any trader’s desk to ask questions about a particular position.

Former SAC employees describe a firm that preaches ethics and integrity, but also is a sink-or-swim culture where traders can be summarily dismissed for poor performance. Mr. Cohen, who was once known to berate his employees in middle of the trading floor, imposes what he calls a “down and out” number for portfolio managers. That is, if the portfolio managers lose a certain amount of money, they risk being jettisoned from the firm.

Mr. Cohen will increase or decrease the money each team manages depending on their performance. If a trading team is generating strong returns, Mr. Cohen will often give them more money to manage. Groups that are floundering can see their allotment cut back.

SAC portfolio managers are known for relentlessly pressing sources for information about companies in the hopes of building what they call a “mosaic” to gain an investment edge. They have incentives to share their best ideas with Mr. Cohen, and if they want to do so, they must fill out an electronic form explaining the investment and the thesis behind it. Each Sunday afternoon, Mr. Cohen speaks to his senior staff to grill them about their investment plans, but the majority of the firm’s daily trades are made without consulting him.

Teams are paid a percentage of the profits that they generate for SAC, which, including its borrowings from banks, has a staggering $39 billion in total buying power. The more money a team manages, the greater that team’s potential compensation. Top traders can earn tens of millions of dollars annually.

“It’s a Darwinian and pressure-packed culture with ridiculous amounts of money at stake,” said another former employee, who asked for anonymity because he did not want to spoil relationships at the firm.

In a letter sent to his investors in February when the two former portfolio mangers were arrested, Mr. Cohen wrote, “If the government allegations are true, these former employees’ actions are egregious violations of our policies and ethical standards and inconsistent with our culture of compliance. Any wrongdoing that might have been committed by an individual or individuals is not reflective of our organization or the integrity of our more than 850 employees.”

In the last several years, SAC has put in place a compliance program to monitor the firm’s activities and has had lawyers including Harvey L. Pitt, the former chairman of the Securities and Exchange Commission , speak to the company’s employees.

“Listen, we’ve beefed up our compliance,” Mr. Cohen told Vanity Fair magazine last year. Still, he allowed, “This was a learning process.”

He explained that, back in the 1990s, “you have to remember, we were smaller. Things were different then.”

The firm has been under a cloud since a former employee, Richard Choo-Beng Lee, pleaded guilty in 2009 to insider trading and began helping the government in its investigation. The crimes he confessed to were committed after he left SAC, but he agreed to provide information about his five years at the firm, which ended in 2004.

The United States attorney in Manhattan has twice issued subpoenas to SAC requesting the firm’s trading records. And late last year, F.B.I. agents raided two large hedge funds owned by former top SAC traders.

Mr. Cohen has declined to comment about the insider trading investigation. There have also been at least two other instances of federal authorities citing illegal trading by traders with connections to SAC.

In 2009 federal prosecutors criminally charged an investment banker with providing illegal tips about merger and acquisition deals to an unnamed hedge fund analyst who traded on the information. The analyst, who generated $3.5 million in profits for his firm, was Jonathan Hollander, a former SAC employee, according to a person with direct knowledge of the case, who would not speak publicly about it.

Mr. Hollander’s lawyer, Aitan D. Goelman, declined to comment. The government dismissed the complaint against the investment banker and has not charged Mr. Hollander with any wrongdoing.

Earlier this year, the Securities and Exchange Commission filed civil insider trading charges against Robert Feinblatt, who started his own hedge fund after leaving SAC in 2002. Mr. Feinblatt did not return telephone calls seeking comment.

Amid the distractions, Mr. Cohen continues to counter the long-held stereotype that he is a cagey hedge fund manager who never leaves his trading lair. He and his wife have stepped up his philanthropy, recently donating $50 million to finance the Cohen Children’s Medical Center on Long Island. He frequently appears at art shows, where he looks to add to a world-class collection of paintings by artists including Pablo Picasso and Andy Warhol.

Before a packed banquet room at the Waldorf Astoria hotel, Mr. Cohen recently sat for an hourlong interview at an investment conference sponsored by a Wall Street research firm.

The interviewer was a fellow hedge fund titan, Paul Tudor Jones, who refrained from asking questions about the government’s insider trading charges.

Instead, he asked Mr. Cohen about his market outlook.

“Underneath stocks are exploding, and everything I’m seeing today looks bullish,” he said. “I’m not going to get negative just for the sake of being negative.”

Article source: http://dealbook.nytimes.com/2011/05/06/insider-trading-cases-stain-fund-managers-reputation/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: president george w bush, sac capital advisors, world economic forum