SEC Revises Administrative Case Against SAC's Steven Cohen

Dec 22 2015 | 9:46pm ET

The U.S. Securities and Exchange Commission said it would proceed with a revised version of its civil case against billionaire hedge-fund founder Steven Cohen.

The news is a step back for the SEC, which had pursued Cohen on the grounds that he failed to supervise two SAC Capital traders who were later convicted of insider trading.

One of the two, Mathew Martoma, was convicted of insider trading in 2014. The second, Michael Steinberg, was found guilty in 2013 of insider trading but had his case dropped following a now-infamous December 2014 decision in the Second U.S. Circuit Court of Appeals that significantly raised the bar for convictions under insider-trading laws. The decision resulted in several convictions being overturned. 

Martoma’s conviction was not affected by the decision, and will thus become the focal point of the SEC’s revised fail-to-supervise case. 

When the SEC originally charged Cohen in July 2013, it sought to bar him from the industry for life. It was not immediately clear whether the agency was still pursuing such a sanction given the case’s revision, although it is widely considered less likely. Moreover, the SEC has disclosed settlement talks underway with Cohen’s counsel, although they appear to be at a relatively early stage. 

Meanwhile, the SEC’s use of an in-house administrative forum for the case could be challenged as unconstitutional by Cohen’s legal team. Several cases have been halted or delayed, including one involving Patriarch Partners’ Lynn Tilton, pending decisions on whether the agency’s use of an in-house court system that hires its own judges is constitutional under the Appointments Clause of the U.S. Constitution.

SAC, at one point among the most successful hedge funds in the industry, agreed to plead guilty in 2013 to securities and wire fraud charges and pay a $1.8 billion fine. The firm was also barred from managing outside capital, shifting to a family office structure to manage Cohen’s money as Point72 Asset Management. Cohen himself wasn’t charged with wrongdoing, and the pending SEC action remains the only personal action against him. 

A hearing is scheduled for April 11 in New York. The SEC case is Administrative proceeding 3-15382.

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