By Richard Beales
NEW YORK, Nov 28 (Reuters Breakingviews) - SAC Capital
investors are set to stew alongside Steve Cohen. The Securities
and Exchange Commission may take civil action against the $14
billion hedge fund firm that bears Cohen's initials. Those with
money at SAC need to weigh the risk. The law moves slowly, but
so does the redemption process - it would take investors months
to withdraw cash.
The so-called Wells notice received by SAC and revealed to
its investors on Wednesday relates to the insider trading
allegations already leveled at Mathew Martoma, formerly a
portfolio manager affiliated with the firm. The SEC and the
Justice Department said he and the firm profited and avoided
losses to the tune of $276 million after Martoma received
confidential information about a drug trial.
Smoke has swirled around SAC as the U.S. government's
pursuit of insider trading suspects has ensnared former
employees. Some hedge funds with shorter, less impressive track
records and lacking loyal investors have closed their doors in
the face of even that level of attention. And any skittish
investors would surely have taken their money elsewhere long
But last week's charges against Martoma are the first to
allege involvement in the trades concerned by Cohen, although he
has not been accused of wrongdoing. And the Wells notice is the
first concrete threat of action against the firm. That makes
sticking with SAC much more difficult. Investors with fiduciary
responsibilities could easily conclude that they can't afford to
risk entanglement in any possible scandal or, more prosaically,
lose out financially as their fellows rush for the exit.
Cohen's investors - at least those responsible for the 40
percent or so of the fund firm's assets that aren't his or his
colleagues' money - have shown grit so far. Some may even worry
that if they redeem and SAC ends up avoiding charges or
otherwise clears its name, they might not get back into the
currently closed and historically desirable fund.
That ought to be a trivial concern at this point. Either
way, though, investors will have time to think about it. The SAC
standard is quarterly liquidity, meaning there's one opportunity
to take money out every three months. The deadline for
requesting cash at the end of December has passed. For good or
ill, the fund firm's legal position could be a lot clearer
before investors have to make their financial choice.
- SAC Capital said on Nov. 28 that it had received a Wells
notice from the U.S. Securities and Exchange Commission,
indicating that the watchdog's staff has recommended bringing
civil insider trading charges against the $14 billion hedge fund
firm run by Steve Cohen, according to a person familiar with the
matter cited by Reuters. SAC made the announcement during a
conference call with investors.
- The news comes a week after the SEC and the Justice
Department filed complaints accusing Mathew Martoma, an
ex-trader at an SAC affiliate, of running a $276 million insider
trading scheme. The complaints included allegations that Martoma
had received approval for his questionable trades from Cohen.
Cohen has not been accused of any wrongdoing, but it was the
first time that he has been linked to suspicious transactions.
(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)