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Prosecutors Circling, SAC Hedge Fund May Shut Down

After several high-profile arrests for insider trading, the head of the rich yet beleaguered SAC hedge fund may call it quits to avoid jail time.

Enough appears to be enough for SAC head Steven Cohen. As the chairman and CEO of the mega hedge fund that has been caught in a whirlpool of insider trading accusations and arrests, media outlets report that he may close his fund to all but his own money and pay a fine to avoid going to prison and possibly losing it all.

Bloomberg reports - they may want to avoid the phrase "Bloomberg has learned" following its terminal spy scandal - that Cohen has discussed this option called a deferred prosecution agreement with prosecutors. While putting Cohen behind bars would be quite a coup for prosecutors, the Justice Department have been using this option more and more. In 2002, there were two cases of deferred prosecution agreements and 35 in 2012.

[The rich past and uncertain future of the New York Stock Exchange.]

SAC Capital oversees $15 billion in assets under management, $7 billion of which belongs to Cohen himself, and has seen nine former and current employees while they working at the firm. For the past year, Cohen appeared to be the next SAC employee to be paraded in handcuffs for the New York tabloids.

The clock is ticking, Bloomberg reports:

A five-year statute of limitations will expire at the end of July for the U.S. Attorney in Manhattan to criminally charge Cohen with illegally selling shares of two stocks based on tips received by Mathew Martoma, a former fund manager at his firm. The Martoma case was the first to link Cohen directly to alleged insider information. Martoma has pleaded not guilty.

The U.S. Securities and Exchange Commission, which won a record $602 million civil settlement with SAC Capital over the trades in March, also must move by July to sue Cohen personally.

Cohen not only wants to avoid jail but his empire is shrinking anyway. Investors have pulled an estimated $1.68 billion from SAC in the first quarter of this year and Blackstone is rumored to be ready to pull it’s $550 million from the troubled fund.

[Before the hammer drops, HFT firms flood DC with donor dollars.]

Whether prosecutors would be satisfied with Cohen taking paying a fine while admitting to no wrongdoing is hard to say. Since the global meltdown of 2008, anti Wall Street sentiments have run high while very few powerful figures have been sent to jail. Perhaps if Cohen wants to pay his way out, he can pay something that will truly sting: his license to trade. Like the disgraced Jon Corzine, perhaps the only real and just punishment is never being able to trade again.

Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio

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IvySchmerken
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IvySchmerken,
User Rank: Author
5/23/2013 | 2:46:12 PM
re: Prosecutors Circling, SAC Hedge Fund May Shut Down
Hedge funds face many types of risks but in this case what institutional investors fear most is reputational or head line risk. Imagine being a pension fund that has millions invested in a firm whose CEO is constantly in the headlines for allegations of insider trading. Though there have been withdrawals, $1.7 billion, for the most part, investors have stuck by Cohen. It remains to be seen what will happen next especially with Blackstone Group facing a decision.
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