Saturday, 30 July 2016
Last updated 12 hours ago
May 6 2011 | 1:06am ET
For years, SAC Capital Advisors founder Steven Cohen has been the rumored target of federal insider-trading probes. Now, with the guilty pleas of two of his former traders, those investigators may be closer than ever to one of the most celebrated hedge fund managers in history.
Prosecutors are looking into trades made by the $3 billion portfolio at SAC personally overseen by Cohen, The Wall Street Journal reports; specifically, they are investigating those trades suggested to Cohen by former SAC traders Donald Longueuil and Noah Freeman, both of whom have pleaded guilty to insider-trading charges in the Justice Dept.'s ongoing probe.
In court filings, prosecutors do not say whether the ideas sent to Cohen by Longueuil and Freeman were based on confidential information, nor do they accuse either Cohen or SAC of wrongdoing. Nor do they indicate the timing of the trades or any detail at all about them. But they do cite records of trades suggested by the two men made by "the Cohen Account," known as "The Big Book" within SAC.
The disclosures, made as part of the case against Longueuil and former expert network consultant Winifred Jiau, mark the first time that the portfolio overseen by Cohen has been tied to the insider-trading investigation.
Portfolio managers at SAC are required to suggest high-conviction trades to Cohen, who speaks with portfolio managers and analysts every Sunday in advance of the trading week. Those "tips" play a major role in compensation at SAC, adding as much as 5% to their annual pay.
The evidence cited by prosecutors includes the pay stubs and tax forms of Longueuil and Freeman, as well as information about SAC itself. Prosecutors also said they have internal SAC e-mails, records and communications with or about independent analyst John Kinnucan, who made news last year when he refused to cooperate in the probe when asked by the Federal Bureau of Investigation. The FBI wanted Kinnucan to wear a wire in phone calls with SAC trader Michael Steinberg.
SAC, which denies any wrongdoing, has been subpoenaed twice in the ongoing investigation. Published reports indicate that the firm, and possibly Cohen himself, has been the target of the probe for at least two years, and was the subject of an insider-trading investigation three years ago and last year.
Longueuil and Freeman are not SAC's only links to the major case. SAC alum Richard Grodin, head of Stratix Asset Management, was also subpoenaed, and two funds managed by SAC alumni, Diamondback Capital Management and Level Global Investors, were among the four hedge funds raided by the FBI in November. Diamondback founder Richard Schimel is also Cohen's brother-in-law.
Nor are Longueuil and Freeman the only former SACers to admit wrongdoing. Richard Choo-Beng Lee, a former SAC fund manager who is a cooperating witness in the Galleon Group insider-trading case, has admitted to trading on confidential information during his time at SAC. Last month, former SAC analyst Jonathan Hollander settled Securities and Exchange Commission charges dating to his time with the hedge fund, although he did not admit any wrongdoing. Also last month, Joseph Skowron, formerly of SAC, was charged with insider-trading in 2008, by which time he was working at FrontPoint Partners.
Finally, Cohen's ex-wife accused the hedge fund honcho of insider-trading in the 1980s in a racketeering suit that has since been dismissed. And last year, an extortionist rabbi was convicted of targeting SAC by claiming a congregant had evidence of insider trading at the firm.
For its part, SAC has said it is "outraged" by the allegations against Longueuil and Freeman and said the two men were fired last year "due to poor performance."