MESSAGE
| DATE | 2013-07-24 |
| FROM | Ruben
|
| SUBJECT | Subject: [NYLXS - HANGOUT] wall street
|
Hedge Funds
|
Legal/Regulatory
July 23, 2013,
8:54 pm 3 Comments
Criminal Indictment Is Expected for SAC Capital Advisors
By BEN PROTESS and
PETER LATTMAN
Steven Cohen, the chief of SAC Capital Advisors.Steve
Marcus/ReutersSteven Cohen, the chief of SAC Capital Advisors.
Federal authorities are poised to level a criminal indictment against
SAC Capital Advisors, the hedge fund run by the billionaire Steven A.
Cohen, capping a nearly decade-long insider trading investigation into
one of Wall Street?s most prominent firms.
Prosecutors and the F.B.I.
in Manhattan are expected to announce the charges in the coming days,
according to people briefed on the matter, who spoke only on the
condition of anonymity. The move, a rare aggressive action against a big
company, could cripple SAC.
Article Tools
* Facebook
* Save
* Twitter
* E-mail
* Google+
* Print
* Share
* Permalink
Related Links
* Documents Documents: Cohen's Response to S.E.C.
* Graphic Graphic: Insider Cases
| Video Video
It is unclear whether SAC?s lawyers will try to settle at the last
minute, though that is an unlikely option at this point. Mr. Cohen is
not expected to be charged criminally, though authorities are still
contemplating bringing charges against other employees at SAC.
While the legal deadline for filing some insider trading charges may
have already passed, authorities are planning to navigate around that
requirement by filing a broader criminal conspiracy case against SAC,
these people said. As long as one of the trades cited in the case took
place in the last five years ? and some did ? then the government has
the power to sweep in older trades to highlight a continuing scheme.
Representatives for the government and SAC declined to comment.
The indictment would come on the heels of the the Securities and
Exchange Commission
?s
filing a civil action last week. It accused Mr. Cohen of failing to
supervise employees suspected of insider trading. Those employees,
Mathew Martoma and Michael S. Steinberg, had been charged with criminal
wrongdoing.
In its order, the S.E.C. cited a 2008 e-mail forwarded to Mr. Cohen in
which an SAC analyst explicitly stated that he had a ?2nd hand read from
someone at? the computer maker Dell
,
a source who provided financial information about the company before its
earnings announcement. Minutes after receiving the e-mail, Mr. Cohen
sold his entire position in Dell, the S.E.C. said.
In a 46-page document responding to the S.E.C.?s charges, Mr. Cohen?s
lawyers said there was an innocent explanation for his not reacting to
the suspicious e-mail: he did not read it.
?Cohen has no memory of having seen it and no witness will testify that
they discussed it with him,? the lawyers said in the document,
circulated internally at SAC and reviewed by The New York Times and
referred to earlier in The Wall Street Journal.
Mr. Cohen, the lawyers argued, received an average of 1,000 e-mails each
day in 2008. At the time, he apparently opened only 11 percent of the
e-mails, though the lawyers did not disclose how they arrived at that
figure.
To locate an incoming message, Mr. Cohen would have to look at the only
one of his seven computer screens that displays e-mail, a monitor that
happened to be ?to the far left? of the others, his lawyers argued. Then
he would have to ?minimize one or two computer programs? to call up his
Microsoft
Outlook window, which was ?reduced? so that Mr. Cohen could see, at
most, only five messages at once.
While the document makes a strong case that Mr. Cohen was not knowingly
trading on inside information, it is unclear whether it will rebut the
S.E.C.?s claims that he did not prevent employees from doing so. The
S.E.C. must show that Mr. Cohen did not ?reasonably? supervise them.
Mr. Martoma, 39, and Mr. Steinberg, 40, have each pleaded not guilty to
criminal insider trading charges and face separate trials in November.
Mr. Cohen?s civil case will play out before an administrative law judge
at the S.E.C. rather than in a federal court. On Tuesday, Chief Judge
Brenda P. Murray was assigned to the case, and a hearing was scheduled
for Aug. 26.
The SAC document, people briefed on the matter said, was adapted from
the lawyers? response to the S.E.C.?s so-called Wells notice that warned
of potential charges. It also outlined the arguments that SAC most
likely presented in an effort to persuade the Justice Department not to
bring a criminal indictment of the fund.
A criminal charge against SAC would likely serve as a death blow to the
firm. SAC has already been hobbled by the government?s investigation,
with investors in the fund pulling about $5 billion from the fund since
the beginning of the year. But an indictment may pressure more investors
to pull their money. It could also force SAC?s trading partners, which
include nearly all of the largest Wall Street banks, like Goldman Sachs
and
Morgan Stanley
,
to suspend business with the firm.
Criminal charges against companies are extremely rare, and the
government is reluctant to bring them given the potential collateral
consequences. After the Justice Department indicted Enron
?s
accounting firm, Arthur Andersen, the firm was forced to close and
28,000 jobs were lost. SAC, which is based in Stamford, Conn., has about
1,000 employees.
Before bringing indictments against companies, federal prosecutors
consider a number of factors when deciding to bring a case, including
the pervasiveness of wrongdoing and the company?s level of cooperation
in the investigation.
The Dell e-mails are expected to play a central role in the criminal case.
Even if he was a vigilant e-mail consumer, the lawyers say, Mr. Cohen
could argue that the 2008 dispatch did not identify the source of the
information about Dell, suggesting that it could have ?lawfully? come
from an authorized person at the company. The source, the lawyers note,
did in fact turn out to be someone from the investor relations
department, who has not been accused of any wrongdoing. The lawyers also
note that the information in the e-mail ?turned out to be wrong.?
Still, SAC made profits and avoided losses of $1.7 million. And once
Dell released its earnings, Mr. Cohen sent an e-mail to Mr. Steinberg
that said, ?Nice job on Dell.?
Mr. Cohen sold his stake in Dell, the lawyers argue, with ?good reason.?
Mr. Cohen, they said, took the position based on the recommendation of a
portfolio manager at SAC, whom people briefed on the matter identified
as Gabe Plotkin. Minutes after Mr. Plotkin started selling, so did Mr.
Cohen.
|
|
