Documentary Shows Cohen Struggling With Insider-Trading Questions

Jan 8 2014 | 12:29pm ET

Lawyers for former SAC Capital Advisors portfolio manager Mathew Martoma want the jury in the case to hear excerpts from firm founder Steven Cohen's deposition last year. But television viewers needed no such permission to watch previously unseen clips of an earlier Cohen deposition on PBS last night.

The clips from Cohen's 2011 testimony, as part of litigation against SAC, were part of a "Frontline" documentary about the government's now five-year-old crackdown on insider-trading. Cohen has long been thought to be the ultimate target of that probe, but while 83 people have been charged and SAC itself has pleaded guilty, Cohen has avoided any allegation of criminal wrongdoing.

"To Catch a Trader" features several of Cohen's exchanges with a lawyer for Canadian insurer Fairfax Financial Holdings, which had accused SAC and a number of other hedge funds of manipulating its stock price. The documentary's director, Nick Verbitsky, got the copy of Cohen's two-day deposition in a suitably cloak-and-dagger way: It was left for him, by an anonymous source, on a USB drive wedged into scaffolding across the street from Frontline's New York offices.

Asked if he was familiar with Rule 10b5-1, which defines insider trading, Cohen told Fairfax lawyer Michael Bowe, "Ah, no. Ah, no. I…. not that…. you would have to explain it to me."

Cohen, who described insider-trading rules as "very vague" in the deposition, told Bowe that his understanding of the law was that it did not necessarily prevent him from trading a stock, even if he had material, non-public information about it.

"Your understanding of the SEC rules on trading on inside information is that they do not preclude unequivocally trading while in possession of such information?" Bowe asked.

"I'm not aware of that," Cohen responded.

Asked about how he would deal with information about an upcoming negative news story about a company he planned to short, Cohen said, "If the story was not coming out in a relatively short period of time, I would say there was ambiguity on that. I think it might be OK."

He also told the lawyer that he was not aware of his own firm's rules about insider-trading.

"Actually, I don't know what it says," Cohen said of SAC's compliance manual. "When it comes to trading I rely on counsel."


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