A former SAC Capital Advisors trader told the Federal Bureau of Investigation that he and others at the hedge fund were expected to pass insider information to founder Steven Cohen for his own use.
Noah Freeman told FBI Agent B.J. Kang, one of the bureau's pointmen in the federal crackdown on insider-trading, "At SAC Capital, you were expected to provide your trading ideas to Cohen." And "Freeman and others at SAC Capital understood that providing Cohen with your best trading ideas involved providing Cohen with inside information."
Freeman made the claim in a proffer session in late 2010, before he began to cooperate with authorities, Bloomberg News reports. He later pleaded guilty to insider-trading and testified at the trial of expert-networker Winifred Jiau that he himself had traded on confidential information at least 18 times during his year-and-a-half at SAC's Boston office.
SAC—and Cohen in particular—have long been seen as a top target of the federal investigation, although neither has been accused of any wrongdoing. According to Kang's memorandum of the meeting, Freeman did not say whether Cohen knew that some of the trading ideas he got from his traders were based on confidential corporate information. But whether he knew or not, Freeman's statements make it clear that the former trader believes that Cohen was trading on insider information.
"Freeman pitched to Cohen may trading ideas over the 18 months he was at SAC and some of the trading ideas involved dirty information," Kang wrote.
"At SAC Capital you were paid a percentage of Cohen's trade if Cohen placed a trade based on your tip. It was clear to Freeman that to survive at SAC Capital, you had to feed Cohen with trading tips."
It is unclear whether or how authorities pursued Freeman's allegations. But it is clear they believe he's a credible witness, based on his cooperation agreement with the government.
Several former SAC employees, in addition to Freeman, have pleaded guilty to insider-trading, including Freeman co-conspirator Donald Longueuil and, last week, Sigma Capital Management analyst Jon Horvath. Former hedge fund manager Richard Choo-Beng Lee said he traded illegally at SAC, and FrontPoint Partners was destroyed by the insider-trading of Joseph Skowron, a SAC veteran. SAC suspended Horvath's former boss, Michael Steinberg, last week.
Cohen himself has denied any wrongdoing and was deposed by the Securities and Exchange Commission earlier this year. A spokesman for SAC noted that Freeman has said that he took pains to hide his illegal activities, throwing further doubt on whether Cohen knew he was receiving confidential tips.
"Mr. Freeman testified under oath that he went to great lengths to hide his illicit activities from SAC by, for example, using code words and communicating off of firm systems," Jonathan Gasthalter said. "His testimony makes clear that SAC did not condone his activities."
Freeman himself told Kang that he sought to hide some activities from SAC, including his ties to Samir Barai, another hedge fund manager who has pleaded guilty to insider-trading, and Longueuil.
"SAC had compliance policies and we wouldn't have been allowed to," he told Kang.