Cohen Suspected Insider Probe In '09

Jan 2 2014 | 11:44am ET

SAC Capital Advisors founder Steven Cohen appears to have been on to the growing investigation of alleged insider-trading at hedge funds, most especially his own.

Cohen was suspicious enough about the possible probe in the summer of 2009 that he called a friend to warn him about it. The conversation with Richard Grodin, a former SAC portfolio manager then at hedge fund Quadrum Capital, followed an approach to Cohen from another former SAC employee, Richard Choo-Beng Lee.

Lee, who worked at SAC from 1999 through 2004, was looking for a job. Cohen told Grodin that he thought Lee might be working with prosecutors. Grodin replied that he doubted Lee would do so, The New York Times reports.

Cohen's suspicions proved correct: When Lee sought a job at SAC in 2009, he was already cooperating with the authorities and recording his phone calls for them. Prosecutors used those tapes to win a short-lived tap on Cohen's own home phone, a line of investigation that proved fruitless.

Prosecutors did not know at the time of Cohen's conversation with Grodin, according to the Times. Quadrum would soon shut down following the Galleon Group insider-trading scandal. Grodin now works at Stratix Asset Management.

Cohen's suspicions may help explain why prosecutors have been unable to pin any criminal activity on him, in spite of years of trying. While seven former SAC employees have pleaded guilty or been convicted of insider-trading, with another set to go on trial next week, and while SAC itself has pleaded guilty to the crime, Cohen himself faces only a Securities and Exchange Commission lawsuit alleging failure to supervise those employees.

For his part, Lee—who admitted to insider-trading during his time at SAC—continues to await sentencing. He was the first person to plead guilty in the probe.


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