The Government Is Moving To Destory Legendary Hedge Fund Firm SAC Capital

Federal prosecutors and regulators are aggressively moving to put legendary hedge fund SAC Capital Advisors out of business. The Securities & Exchange Commission last week brought an administrative action against...

Steve Cohen, alleging the billionaire founder and owner of SAC failed to supervise employees who were engaged in insider trading. Now, Preet Bharara, the U.S. Attorney in Manhattan is reportedly set to indict SAC Capital in the next few days, which likely would put the hedge fund firm that manages $15 billion out of the business of managing external funds.

The downfall of SAC Capital would be a seminal moment on Wall Street. The firm founded by Cohen in 1992 is one of the greatest money machines ever assembled and one of the leading hedge fund firms in the history of the $2 trillion industry.  It has delivered to investors annual net returns of 25% over the last two decades, an incredible achievement given that SAC charges the richest fees in the hedge fund industry—a 3% management fee and 50% performance fee. The firm is a cash cow for Wall Street, paying investment banks as much as $1 billion annually in various fees trading and finance fees. It employs some 1,000 people, many of whom are high-paid traders who operate in a high-pressure environment that can make them rich if they perform. Many former employees have moved on to start their own hedge funds.

The end of SAC as a business would most certainly symbolize the end of an era. Still,  Cohen could still remain a big player on Wall Street because some $8 billion of the firm’s capital belongs to him and the actions the government is currently brining on both the regulatory and criminal front are not designed to stop him from trading his own funds. Cohen, a secretive and mysterious figure, has long denied any wrongdoing and maintained that he has acted appropriately at all times. Nevertheless, SAC agreed in March to pay $616 million, which is essentially coming from Cohen’s pockets, in the largest insider trading settlement ever to resolve a related SEC action. In responding to the SEC’s failure to supervise action against Cohen, an SAC spokesman said the S.E.C. “ignores SAC’s exceptional supervisory structure, its extensive compliance policies and procedures, and Steve Cohen’s strong support for SAC’s compliance program.”

In the SEC action, Cohen is accused of communicating with his hedge fund analysts about relationships that Mathew Martoma, a former portfolio manager who reported to Cohen, had in the pharmaceutical industry, including a relationship with a doctor who provided portfolio managers with potentially non-public information about a drug trial. Martoma has been criminally charged in an insider trading case and has pleaded not guilty. The SEC also cites information Cohen received from another portfolio manager Michael Steinberg, who has also been indicted and pleaded not guilty, that involved alleged insider trading of Dell securities in 2008.

Federal prosecutors, who plan on bringing a conspiracy case against SAC, are not bringing criminal charges against Cohen directly.

Source:http://www.forbes.com/sites/nathanvardi/2013/07/24/the-government-is-moving-to-destory-legendary-hedge-fund-firm-sac-capital/