Report: SAC Discourages E-Mail Use To Limit Paper Trail

Feb 25 2011 | 9:54am ET

As federal investigators try—and, to date, fail—to close in on SAC Capital Advisors and founder Steven Cohen, the firm is doing all it can to frustrate those efforts.

The Stamford, Conn.-based hedge fund giant has one of the largest legal and compliance teams in the industry, with some 30 professionals, including lawyers, on the staff. But in addition to reviews of the personal trading of its employees and maintaining strict limits on employee trading—including a do-not-trade list—SAC also uses its huge compliance operation towards what might be considered less-wholesome ends.

For one, Reuters reports, the compliance team under Peter Nussbaum has discouraged SAC employees from using e-mail, instant messagers or other modes of communication that might leave a paper trail. If so, the effort has been largely successful: Despite several probes of the firm, nothing incriminating against Cohen has come up, and the lack of e-mails has been a frustration to those who have sued the firm over the years.

Yet despite the apparent zeal on the part of federal investigators to "get" Cohen and SAC, the firm hasn't suffered the massive redemptions—leading in at least one case to a firm going out of business—that other firms implicated in recent insider-trading cases have, even after the arrest of two former SAC managers. While undoubtedly due in no small part to Cohen's outsized and unrivaled reputation, the SAC chief has left little to chance.

In the wake of the arrests of the aforementioned two former managers, Donald Longueuil and Noah Freeman, senior managers at SAC moved to assuage any fears on the part of both its 250 staffers and its most important investors.

The same attention to detail had Cohen pick the sleepy Hudson Valley village of Wappingers Falls, N.Y., about 70 miles north of New York City, to house the firm's disaster recovery center, which ensures that no data—not even the rare e-mail—is lost.

Why Wappingers Fall? Because the Dutchess County village of less than 5,000 is on a different power grid than either Stamford or New York City, where SAC also has an office. But, just in case, the center also has an emergency generator.

According to Reuters, Cohen is "personally irritated" by the unending government scrutiny. He is said to believe that the issue is not any evidence of a culture of illicit trading or even the firm's reputation from its more wildcat days, but an effort to destroy him because of his success.

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Editor's Note

    Oct 21 2015 | 10:41am ET

    One of the most unique charity benefits in the hedge fund industry, A Leg To Stand On's (ALTSO's) Hedge Fund Rocktoberfest - NYC, raised nearly $500,000 last Thursday thanks to the generous support of major sponsors and nearly 1,400 attendees from the Tri-State finance, business and hedge fund communities. Read more…