SEC says hedge-fund exec didn’t halt insider trading by workers
The Securities and Exchange Commission contends that Steven A. Cohen, founder and head of SAC Capital Advisors, failed to properly supervise two portfolio managers who allegedly made highly profitable stock trades based on confidential information unavailable to the investing public.
Los Angeles Times
NEW YORK — Securities regulators want to bar a major Wall Street hedge-fund manager from overseeing other investors’ money, accusing him Friday of ignoring signs his portfolio managers were trading on illegal inside information.
The Securities and Exchange Commission contends that Steven Cohen, founder and head of SAC Capital Advisors, failed to properly supervise two portfolio managers who allegedly made highly profitable stock trades based on confidential information unavailable to the investing public.
In announcing an administrative proceeding against Cohen, the SEC said he received “highly suspicious information” that should have led any “reasonable hedge-fund manager” to investigate further.
“Hedge-fund managers are responsible for exercising appropriate supervision over their employees to ensure that their firms comply with the securities laws,” Andrew Ceresney, co-director of the regulator’s enforcement division, said in a statement. “After learning about red flags indicating potential insider trading by his employees, Steven Cohen allegedly failed to follow up to prevent violations of the law.”
SAC Capital vowed to fight the SEC’s case. The hedge fund said in a statement the SEC’s administrative proceeding “has no merit” and that Cohen has always acted appropriately.
“The SEC ignores SAC’s exceptional supervisory structure, its extensive compliance policies and procedures and Steve Cohen’s strong support for SAC’s compliance program,” the fund said in a statement.
The Connecticut-based hedge fund has been the target of government investigations in recent years.
Recent criminal cases involving the portfolio managers — Mathew Martoma and Michael Steinberg — have fueled speculation that federal prosecutors in Manhattan have been trying to build a case against Cohen. Both Martoma and Steinberg have pleaded not guilty.
Cohen has not been charged with any crimes, and regulators have not accused him in any civil actions of participating in insider trading.
Earlier this year, SAC Capital agreed to pay more than $615 million to settle civil cases involving Steinberg’s and Martoma’s alleged insider-trading.
SEC nixes deal with Falcone
WASHINGTON — The SEC has rejected a preliminary settlement that its enforcement staff reached with hedge-fund billionaire Philip Falcone, in part because some commissioners concluded the deal was not tough enough.
The rejection was announced Friday in a brief public filing by Falcone’s company, Harbinger Group.
The settlement would have barred Falcone from critical hedge-fund activities for two years — such as raising new funds or being involved in deal making through his firm.
But the deal did not require Falcone to admit wrongdoing, and it allowed him to remain chief executive of Harbinger Group. Among the sticking points for some commissioners was that the agreement did not bar Falcone from serving as an officer in a public company, people familiar with the commission’s thinking said.
It is unusual for the SEC to reject a settlement recommended by its enforcement division. Typically the division’s lawyers and agency’s commissioners debate the terms of a settlement before it is brought up for a vote.
But SEC Chairwoman Mary Jo White has pledged a get-tough-on-Wall Street approach by the agency since taking the helm in April.
In June, White said the agency would start requiring more defendants to admit guilt in certain types of civil settlements. It is unclear whether this new policy is at play in the Falcone case. Neither Falcone nor the SEC could be reached for comment.
The agency accused Falcone of leading a “lavish lifestyle” while working to limit the ways clients could pull out of their investments. In one instance, Falcone took out a $113.2 million loan from one of his hedge funds to pay personal taxes while most of the fund’s investors were unable to access their money.
The agreement struck by the SEC’s enforcement division called for Falcone to pay $4 million of the $18 million fine — likely a tiny portion of his net wealth — and for Harbinger Capital to pay the rest, according to a person familiar with the matter who spoke on the condition of anonymity because the settlement is not final.
Falcone’s fame grew quickly across Wall Street after he bet against subprime mortgages right before those loans sparked a credit crisis that threatened to topple the financial system.
He used his wealth to gain allies in Washington, D.C., critics say, as he attempted to push through a venture called LightSquared, which proposed using satellites to create a cellular network that could compete with AT&T’s and Verizon’s.
Falcone’s $3 billion bet on LightSquared proved ill-fated. The FCC, after initially embracing the plan, turned on it last year after other federal agencies complained the technology could interfere with GPS devices and airplane systems.
The Washington Post