SAC Increasingly Central In Insider-Trading Investigation

Nov 24 2010 | 5:11am ET

As the U.S. probe into alleged insider-trading at hedge funds grows, SAC Capital Advisors has yet to be accused of wrongdoing. Indeed, the hedge fund giant has been asked only to provide information—along with Citadel Investment Group and dozens of other firms subpoenaed last year.

Still, there is an unmistakable sense that SAC or founder Steven Cohen is the "big fish" that the Justice Department most hungers to take down. Two hedge funds founded by alumni of the firm—including one led by Cohen's brother-in-law—were raided this week. And the Federal Bureau of Investigation asked the head of one of the research firms at the center of the investigation to wear a wire in conversations with SAC, a client.

SAC told investors yesterday that it received an "extraordinarily broad" subpoena, identical to those served on several other hedge funds.

"Neither the subpoena nor any other information of which we are aware suggests that anyone at SAC has engaged in wrongdoing," it said.

Certainly, however, the FBI has some suspicions to that end. Last month, it confronted Broadband Research's John Kinnucan at his home in Portland, Ore., accusing him of passing on confidential information and then asking him to tape his calls with SAC, The Wall Street Journal reports. Kinnucan refused to cooperate.

Among the FBI agents conducting interviews with research firm employees about the use of so-called expert networks is B.J. Kang, who participated in the Galleon Group investigation last year and who led an insider-trading probe into SAC three years ago.

Certainly, an increasing number of SAC veterans have found themselves ensnared in insider-trading cases in recent years. Two of the firms who saw their offices raided this week, Diamondback Capital Management and Level Global Investors, were founded by SAC alumni. One of Diamondback's three founders, SAC vets all, is Richard Schimel, who is married to Cohen's sister, Wendy. And Richard Grodin, the former SAC portfolio manager who now runs Stratix Asset Management, has also been subpoenaed.

Choo Beng-Lee, a cooperating witness in the Galleon Group case, said that he traded on confidential information during his time at SAC. One witness in the Galleon case has reportedly provided information about SAC.

Jonathan Hollander, a former analyst at SAC's CR Intrinsic Investors division, has been linked to two insider-trading cases, one against former Blackstone Group banker Ramesh Chakrapani and the other against hedge fund manager Steven Fortuna, a key government witness in the Galleon case and a close friend of Timothy and Todd McSweeney, the founders of hedge fund Loch Capital Management, the third firm raided on Monday.

Another former SAC employee, Joseph Skowron, is at the center of the insider-trading case against a French doctor. Yves Benhamou has been charged with passing confidential information to FrontPoint Partners; Skowron led that firm's healthcare hedge funds. Skowron has been suspended and FrontPoint is closing his funds.

Last year, the Securities and Exchange Commission launched an investigation into possible insider-trading at SAC. The probe was prompted by a lawsuit filed by Fairfax Financial Holdings, which accused SAC of conspiring with others, including Kynikos Associates, to drive down its share price.

SAC has been the focus of a number of such claims, including those made by Cohen's ex-wife, Patricia Cohen, who accused her ex-husband of insider-trading in the 1980s, before he founded the hedge fund. SAC was also the target of an extortionist rabbi, who promised a congregant's silence in exchange for $4 million.


In Depth

Q&A: Brevan Howard’s Charlotte Valeur Talks Strategy

Sep 18 2014 | 11:18am ET

Charlotte Valeur chairs the board of Brevan Howard Credit Catalysts, an LSE listed...

Lifestyle

Hedgies Rock Out For Children's Charity

Sep 15 2014 | 8:40am ET

It's that time of year again—when hedgies trade in their spreadsheets for guitars...

Guest Contributor

Volkered: How Financial Sector Reforms are Creating Opportunities for Hedge Funds

Sep 16 2014 | 11:28am ET

New regulations have dramatically curtailed proprietary trading activity in investment...

 

Editor's Note

    Get A Sneak Peak Of The Alpha Pages

    Aug 25 2014 | 11:21am ET

    As many of you know, FINalternatives was recently acquired by the owners of Futures magazine, a firm called The Alpha Pages LLC. Today marks the soft-launch of a new sister site for both publications. As its name suggests, The Alpha Pages will cover all types of alternative investments, going far beyond the more well-known ones such as hedge funds and private equity. Read more…

 

Futures Magazine

September 2014 Cover

The London Whale: Rogue risk management

Credit default swaps brought down the London Whale and cost JPMorgan $6.2 billion. Here is how it happened.

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.