A year ago, when the FBI approached former SAC portfolio manager Mathew Martoma, who was charged with insider trading last month, here's how he reacted according to Dealbook's Peter Lattman:
Last winter, another agent confronted Mathew Martoma, a pharmaceutical-industry analyst, at his 8,000-square-foot Florida mansion. As they stood on the front lawn, with Mr. Martoma’s wife and children inside, the agent told him that they had evidence that he had broken the law.
Overcome with stress, Mr. Martoma passed out.
Keep in mind Martoma has a "fake lawn," according to a Bloomberg News report. A fake lawn is just artificial grass.
Anyway, last month, Martoma was charged in what is believed to be "the most lucrative" insider trading scheme ever. Martoma worked at CR Intrinsic Investors, a subsidiary of SAC.
He is accused of using negative confidential drug trial info in pharmaceutical companies, Elan Corporation and Wyeth, between the summer 2006 and mid-July 2008. The hedge fund was then able to sell off its positions and short those stocks, the complaints alleged.
Image may be NSFW. Clik here to view.The government's crackdown on insider trading at hedge funds may actually be benefiting one fund at the center of the probe—SAC Capital.
The investigations have resulted in the ruin of several hedge funds.
The larger funds—Galleon, Level Global, Diamondback—could be considered competitors or potential competitors of SAC Capital. They competed with SAC for investor capital and in aggressive trading positions. They also competed for personnel, each hoping to hire the best traders and analysts for themselves.
Much of this competition was somewhat one-sided, of course. SAC doesn't need more capital—although it does need to defend against attempts by other funds to lure away investors. SAC reputation as a trading powerhouse is so great that if it decides to hire a trader, other firms have trouble making competitive offers.
But even if they weren't exactly poised to go up against SAC directly, they were potential competitors. And inside of SAC, traders often informally bench marked their own performance (as well as their compensation) not just against internal goals but against how traders at other firms were doing, according to people familiar with the matter.
It's ironic that one unintended consequence of the government's insider trading probe has been to take out SAC's competition. It has fewer funds to worry about competing for capital and personnel.
Maybe Steve Cohen, the founder of SAC, should send the FBI and the SEC a thank you note.
Billionaire Steve A. Cohen, who runs the super-secretive hedge fund SAC Capital Advisors, is known on Wall Street for being one of the most successful traders.
He began his Stamford-headquartered hedge fund in 1992 with only $25 million. Today the fund has $14 billion assets under management and employees around 900 people globally.
During the late 1990s and early 2000s, Cohen came into prominence as a powerful Wall Street trader for his grand slam returns.
It's widely known that Cohen is the ultimate target of the Securities and Exchange Commission and the Department of Justice.
While he has been implicated in the latest insider trading case, it's important to keep in mind that he has not been charged with any wrongdoing. In fact, he may never be charged.
During a conference call last week where SAC management disclosed that it had received a Wells Notice from the SEC, Cohen told investors that he's confident he acted appropriately and takes these matters very seriously.
We really don't know the notoriously press-shy hedge fund manager, who rarely gives interviews, all that well.
Now let's take a tour of his fabulous life and tremendous career and get to know him better.
He's a Long Island native. He grew up in a middle class family and had a lot of siblings.
Image may be NSFW. Clik here to view.
Steve Cohen was born on June 11, 1956. He's the third out of eight kids.
He grew up on Great Neck, Long Island, New York.
His father worked at a dress manufacturer and his mother was a homemaker who also taught piano lessons.
A year ago, when an FBI agent told former SAC portfolio manager Mathew Martoma at his Florida home they had evidence he broke the law, he passed out in his front yard, the New York Times reported.
Last month, Martoma was arrested at his Boca Raton mansion and has been charged in what is believed to be "the most lucrative" insider trading scheme ever. Martoma worked at CR Intrinsic Investors, a subsidiary of SAC.
Curbed's Rob Bear was able to track down the photos of Martoma's Florida mansion, which he purchased in December 2010 for $1.96 million. The SEC's complaint against Martoma, he received a $9.3 million bonus and no bonuses in 2009 and 2010 before being let go.
Gasparino went on Fox Business to explain shortly after this tweet, and pointed out that it isn't strange for companies to pay for their employees' legal fees. However, Martoma hasn't been a SAC employee for years.
He added that Martoma's lawyer charges $1,300 an hour.
DealBook put on a conference today and some of the biggest names in the financial services and business community were there talking about the economy following the election.
During the Q&A session with JPMorgan Chase's CEO Jamie Dimon, the first audience member to speak asked Dimon about the Burmese Junta and the bank's exposure to SAC Capital.
Here's what we've transcribed:
DIMON: Why don't you stand up so they know where you are.
SORKIN: Please introduce yourself if you could.
AUDIENCE MEMBER: ...With Secretary of State Hilary Clinton going to Burma and Barack Obama visiting Burma as well, there's a rumor about you shadow banking with the Burmese Junta and I'd like to second follow up with that on....
DIMON: There's a rumor about what?
AUDIENCE MEMBER: Shadow banking with the Burmese Junta.
DIMON: I have no idea what you're talking about.
[audience laughs]
AUDIENCE MEMBER: Also, with the recent insider trading scandal at SAC, I was wondering what kind of exposure JPMorgan would have to that?
DIMON: Hopefully none. I don't know exactly what the facts about what's going on around there so I don't want to comment, but hopefully none.
SORKIN: Okay. Thank you for that.
We've also included screenshots of Dimon and Sorkin's facial expressions. You can watch the full interview here. (Start at the 26:40 minute mark for the Q&A.)
This is when the audience member starts asking the question...
Image may be NSFW. Clik here to view.
Dimon looks confused
Image may be NSFW. Clik here to view.
Here's Sorkin's expression as the audience member goes on to ask about SAC Capital.
Dec. 17 (Bloomberg) -- Two days before Dell Inc. was set to report second-quarter 2008 earnings, Jon Horvath, a technology analyst at SAC Capital Advisors LP, e-mailed his boss Michael S. Steinberg and another portfolio manager to warn that the computer maker would miss earnings estimates.
“I have a 2nd hand read from someone at the company,” Horvath began the Aug. 26 message, which provided details on gross margins, expenditures and revenue. “Please keep to yourself as obviously not well known.”
Steinberg, a 15-year veteran of the hedge fund founded by billionaire Steven A. Cohen, responded: “Yes normally we would never divulge data like this, so please be discreet. Thanks.”
The e-mails indicate Steinberg, the longest-serving SAC employee linked to the U.S. insider-trading probe, discussed the Dell trade with Cohen. While neither has been accused of any wrongdoing, the messages were admitted as evidence at the New York insider-trading trial of two hedge-fund managers last week after a judge ruled they supported prosecutor claims that Steinberg should be considered an unindicted co-conspirator.
Last month, Cohen, 56, was directly linked to a trade at the center of another insider prosecution, which the government described as the “most lucrative” ever uncovered. SAC, which is based in Stamford, Connecticut, and manages $14 billion, was told by the Securities and Exchange Commission that the agency is considering pursuing civil fraud claims related to alleged insider trading by former SAC portfolio manager Mathew Martoma, who traded stocks of two drug makers.
SAC Investigations
The Federal Bureau of Investigation and the SEC are also probing trades that SAC Capital made in shares of InterMune Inc., a Brisbane, California-based biopharmaceutical company, and Weight Watchers International Inc., a person familiar with the matter said earlier this month.
Steinberg, 40, worked at SAC’s Sigma Capital Management unit and was one of 15 portfolio managers handling technology, media and telecommunications stocks before he was placed on leave in September.
Horvath was scheduled to go on trial with the two fund managers, who now await a jury verdict in Manhattan federal court. Instead, he pleaded guilty to conspiracy and securities fraud in September related to the Dell trade and said he had passed confidential information to his portfolio manager, who, he said, traded on the tips.
While Horvath didn’t name Steinberg as part of his plea, prosecutors alleged during the recent trial that Steinberg received the information and traded on the tips.
Swapped, Funneled
The government said that Horvath was part of a group of friends who were analysts at hedge funds who swapped nonpublic information from company insiders funneled to them from Jesse Tortora, an analyst at Diamondback Capital Management LLC.
The messages exchanged among Horvath, Steinberg and another SAC portfolio manager, Gabe Plotkin, show that Steinberg consulted with Cohen about the August 2008 Dell trade.
“Guys, I was talking to Steve about Dell earlier today and he asked me to get the two of you to compare notes before the print, as we are on opposite sides of this one,” Steinberg wrote to Horvath and Plotkin.
Plotkin, who hasn’t been accused of wrongdoing, is one of 10 portfolio managers at Sigma focusing on consumer stocks. He joined SAC in 2006 and is among the firm’s top portfolio managers, overseeing more than $1 billion, according to a person with knowledge of the firm.
Missed Projections
On Aug. 28, 2008, Dell’s earnings missed analysts’ projections, sending its stock down 14 percent the next day, the most in almost eight years. Prosecutors said Steinberg shorted Dell securities based on Horvath’s information, earning the hedge fund about $1 million.
The e-mails were made public as part of the month-long trial of Level Global Investors LP co-founder Anthony Chiasson and former Diamondback Capital fund manager Todd Newman. Both are accused of reaping more than $70 million on trades based on illicit tips. The men have pleaded not guilty and face as long as 20 years in prison if the jury, which began deliberations Dec. 12, returns convictions on the most serious charges.
The e-mails don’t show if Steinberg relayed the insider information on Dell to Cohen, or that Cohen or Plotkin ever traded on Horvath’s information or knew it was confidential, a requirement for any insider trading allegation.
The e-mails are just an example of the vast array of evidence that the FBI has amassed against hedge funds, including SAC, in the government’s five-year crackdown on insider trading. Since the law enforcement initiative began, at least six current or former SAC employees have been tied to allegations of insider trading. Three have pleaded guilty to federal charges.
Cohen’s Link
Last month, for the first time, Cohen was connected to transactions at the center of an insider-trading case, when Martoma, the ex-SAC portfolio manager, was charged with trading shares of Elan Corp. and Wyeth LLC based on inside information. Prosecutors said Martoma shared his information with the hedge- fund owner, Cohen, who then traded on it.
Jonathan Gasthalter said last month that Cohen and SAC are confident they acted appropriately and will continue to cooperate with the government’s inquiry. He declined last week to comment on the Dell e-mails.
Steinberg joined SAC in 1997, at the age of 25 when the firm was a collection of about 50 employees managing mostly the founder’s own money. He was part of a group that socialized with Cohen, taking vacations in places like the Bahamas, going to basketball games and to parties at Cohen’s mansion, according to a person with knowledge of the firm.
Wedding Guest
One of Steinberg’s colleagues was Richard Choo-Beng Lee, who worked at SAC from 1999 to 2004. Lee was among those charged in November 2009 with insider trading at another firm, the first time a former SAC employee was tied to the government’s probe. He pleaded guilty and cooperated with the government’s Galleon Group LLC hedge fund insider-trading case.
Noah Freeman, another former SAC fund manager who pleaded guilty and is cooperating, testified last year that he had committed insider trading while at SAC. He has since provided information to federal authorities on more than a dozen people he said he knew were committing securities fraud related to technology stocks.
Steinberg grew up in Great Neck, Long Island, and graduated in 1994 from the University of Wisconsin in Madison with a degree in philosophy and history, the university said. According to a New York Times announcement, he married Elizabeth Sims in 1999 in New York. Cohen was a guest at the wedding, a person with knowledge of the matter said.
A ‘Mensch’
Friends and former colleagues said Steinberg is amicable and well-liked. One friend described him as a “mensch,” a Yiddish term for an honorable and decent person, according to people familiar with him who asked not to be identified.
Together with three other hedge-fund managers, he started Natan, a network of young philanthropists who hold events to promote Jewish culture and Israel, according to its website. He lives in Manhattan in a Park Avenue apartment, which he bought for $8 million in 2009, according to Streeteasy.com.
U.S. District Judge Richard Sullivan, who is presiding over Newman and Chiasson’s case, ruled on Dec. 6 that Steinberg was an uncharged conspirator in Horvath’s insider-trading scheme. Steinberg’s lawyer, Barry Berke, declined to comment on the e- mails or the judge’s ruling.
Assistant U.S. Attorney Antonia Apps argued the SAC e-mails were relevant because they showed Steinberg was aware Horvath had a source inside Dell who had previously provided “very good” data on the computer maker.
Final Information
She said the SAC messages show that in the days before Round Rock, Texas-based Dell’s scheduled earnings release, Horvath had obtained final information that the company would miss Wall Street estimates.
The e-mails indicate Horvath obtained insider information through a friend, described in the messages as “JT.”
Prosecutors said during the insider trading trial of Chiasson and Newman that JT is a reference to Tortora, who worked as a technology analyst for Newman. Tortora testified during the trial that he obtained inside information from Dell through a friend and shared it with Horvath and others. Tortora has pleaded guilty and is cooperating with the U.S.
“This e-mail is sensitive information and then two minutes later, Mr. Steinberg trades consistent with the information,” Apps told Sullivan at a hearing on the e-mails. “Steinberg fully understands that this is from somebody inside the company.”
Company Insiders
Prosecutors also showed the jury e-mails in which Tortora passed information from company insiders on to his group, who in turn shared it with their fund managers, including Steinberg.
Newman’s lawyer, Steve Fishbein, argued Horvath’s statement “someone at the company” was a reference to Dell investor relations. He said the stated warning in the e-mail to keep the matter “down low” was an effort by fund managers to keep proprietary trading information from leaking out.
“It makes common sense that when traders have legitimate ideas that they have developed through modeling or through whatever, totally legitimate, they do not share with other hedge funds,” Fishbein said. “It’s not that it means something improper.”
The judge ruled weighing the preponderance of evidence, which is a legal standard lower than that needed for a conviction, that Steinberg was conspiring with Horvath.
“It doesn’t look good” for Steinberg, Sullivan said, after reading the e-mail aloud. “It seems to me that the logical inference is that Steinberg knows exactly what’s going on,” the judge said. “Why would you need to keep statements from IR on the ‘down low’?”
Comparing Notes
Fishbein argued the e-mails showed fund managers were comparing notes about Dell and consulted Plotkin because they were unsure.
“Comparing notes is not in furtherance of the conspiracy,” the judge replied. “But having compared notes and having divulged the source of the information on gross margin, and then telling the other person who is on the other side, ‘By the way, don’t tell anybody about this, be discreet,’ that seems to me in furtherance of the conspiracy.”
The e-mail case is U.S. v. Newman, 1:12-cr-00121, U.S. District Court, Southern District of New York (Manhattan).
--Editors: Christian Baumgaertel, Patrick Oster
To contact the reporters on this story: Patricia Hurtado in Manhattan federal court at pathurtado@bloomberg.net; Katherine Burton in New York at kburton@bloomberg.net; Saijel Kishan in New York at skishan@bloomberg.net.
To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; Christian Baumgaertel at cbaumgaertel@bloomberg.net.
This just in from the Bloomberg, Anthony Chiasson, founder of defunct hedge fund Level Global, and Todd Newman, a former portfolio manager at Diamondback Capital, have been found guilty of insider trading.
Newman and Chiasson are said to have made $70 million on illegal tips after using an "expert network" firm called Primary Global Research that connected employees of public companies with buy-side analysts.
An alumnus of Steve Cohen's SAC Capital, Chiasson was arrested by the FBI in January of this year. That same day, seven people (including Newman) from three different hedge funds were charged with insider trading on shares of Dell and Nvidia, according to a press release from the U.S. Department of Justice.
This has all been a part of the Department of Justice's crackdown on insider trading, and this case especially was described as a “a tight-knit circle of greed”. Six other traders involved with the case pleaded guilty and cooperated with authorities, according to the NYT.
Clients told the Journal that the firm, which invests $3 billion in hedge funds, was severing ties with SAC because of ongoing investigations into its activities by securities regulators.
George Fox, a Titan Advisors co-founder, started investing with SAC Capital in the mid-90s, not long hedge fund launched in 1992.
"They've told us they still think SAC is a good firm but Titan doesn't need the headline risk, and we sure don't," said Tom Taneyhill, executive director of the Fire & Police Employees' Retirement System of the City of Baltimore, on Friday.
Lyxor, Soc Gen's asset management arm ($113 billion with AUM) announced that it would withdrawal from SAC Capital earlier this month.
Maybe you lost this in the New Year's shuffle like we did, but the Wall Street Journal blog, Deal Journal put out its list of the biggest losers of 2012 and almost all of them are Wall Streeters.
There are only 4 people/companies on the list, and three of them come from Wall Street. The list starts with Jamie Dimon (citing the $6 billion trading loss in JP Morgan's chief investment office, of course), and then moves on to Facebook, Steve Cohen and his hedge fund SAC Capital, and then finally trading firm Knight Capital.
To be fair, one could argue that Facebook is also a story of Wall Street failure because Deal Journal cites the company's IPO disaster as the reason for presence on this list. So of course, the company that took the company public gets a shout out.
From Deal Journal:
It was the second-biggest IPO in U.S. history and Mark Zuckerberg and Co. were made instant billionaires by the $100 billion valuation. But Facebook fell for its own hype. The company and its lead underwriter Morgan Stanley overestimated the demand for the offering, increasing both the number of shares in the offering and the price just before the IPO. The fallout has been severe, no matter where the blame should lie. As shares slumped, regulators have fined the banks and confidence in the IPO system and markets in general has suffered.
And it wasn't just Morgan Stanley that rode the hype of the IPO deal either. JP Morgan flew the Facebook flag at its office (as you can see above) had a huge banner welcoming in the company on IPO day, and even had its bankers rocking Facebook jackets.
So instead of Wall Street claiming 3/4 of 2012's fail spots, it could be fair to say that it gets something like 3.2/4.
This just came in over the Bloomberg: Wesley Wang, a former analyst for SAC Capital Advisors' Sigma Capital unit, has told federal agents the names of 20 more people who he claims traded on insider information. Some had not been charged in the ongoing investigation.
This could be a problem for Steve Cohen's firm SAC Capital. That's because Wang first came into the spotlight in July when he admitted to passing inside information about Cisco and other companies to Dipak Patel, a portfolio manager at SAC subsidiary Sigma Capital.
Wang pleaded guilty to two counts of conspiracy to committ securities fraud and testified against hedge fund manager Doug Whitman (of Whitman Capital LLC), who was also found guilty of two counts of conspiracy for trading on illegal tips in August, according to Bloomberg.
Wang's information has already led to 10 convictions.
The hedge fund was the most profitable of the large hedge funds in 2012, according to Bloomberg, but it is under intense scrutiny from federal regulators.
SAC Capital has told its employees and advisors to brace themselves for a mass exodus of investor capital in the coming months, the WSJ reports.
Withdrawals could equal $1 billion, or 17% of outside investor funds, and clients have until February 15th to request a redemption if they want their money back by the end of Q1.
According to Bloomberg, SAC was the most profitable large hedge fund in the world in 2012, so the question is not the success of its investments. Rather, investors have becomes skittish because the firm has come under the intense scrutiny of regulators for its links to multiple insider trading scandals over the last several years.
SAC founder Steve Cohen himself was said by federal prosecutors to have interacted with alleged inside trader Mathew Martoma. Martoma was a fund manager at a SAC Capital subsidiary fund, and is accused of helming the most profitable insider trading scheme of all time.
$1 billion is a considerable mount for a firm like SAC. In total, it manages $14 billion, $6 billion of which comes from outside investors.
"It is premature to speculate about redemptions," an SAC spokesman said Thursday. "Investors have until next month to decide."
Even if investors demand all their money back from SAC, they will only be able to collect their funds 25% at a time, every three months starting in March, people familiar with SAC's rules said. The staggered withdrawals mean that SAC expects at least $250 million to be withdrawn at the end of March.
There have already been signs that investors are willing to flee despite SAC's record of 30% annualized returns since its inception in 1992.
At the end of last year, Societe Generale's Lyxor Asset Management arm (with $113 billion assets under management) announced that it would take its money out of SAC. Titan Advisors, a wealth managements firm whose co-founder has been investing with SAC since its early days, also announced that it withdrawal.
Perhaps that why yesterday, according to the NY Post, despite the fact that the former SAC Capital analyst admitted to insider trading for 7 years he was sentenced to two years probation without a fine.
It's a message from Federal regulators — if you help us, we'll help you. Wang's cooperation led to ten insider trading convictions.
From the NY Post:
“The extent of Mr. Wang’s cooperation . . . really goes beyond that even of most cooperators,” Manhattan federal Judge Jed Rakoff said at Wang’s sentencing yesterday. “He is really quite, quite valuable.”
When the infamously harsh Judge Rakoff is giving you props, you've obviously done your duty. And since no one knows the extent to which Wang cooperated, Wall Street may not have seen the Feds act on all the information he gave them.
That should be disturbing for SAC Capital and its founder, Steve Cohen.SAC founder Steve Cohen himself was said by federal prosecutors to have interacted with alleged inside trader Mathew Martoma.
Martoma is accused of running the most profitable insider trading scheme in history, netting a total of $276 million in alleged ill-gotten gains, but so far Martoma's not talking.
Maybe after seeing how Wang was sentenced he'll change his mind.
The exodus of cash has already been public and brutal. Clients can pull 25% of their investments out of the fund every quarter, but they have to give the firm 45 days notice. The next deadline for notifying SAC is February 15th, and a bunch of firms have already announced that they're clearing out.
Here's a list of some redemptions made public so far:
Societe Generale's Lyxor Asset Management arm (with $113 billion assets under management) announced that it would take its money out of SAC.
Titan Advisors, a wealth managements firm whose co-founder has been investing with SAC since its early days, also announced that it withdrawal.
Citigroup Inc.’s private bank last month suggested clients not add to their SAC investments.
HSBC's private bank also advised clients to not add money to their SAC investments this month, according to Bloomberg.
SAC has said it expects to see $1 billion worth of redemptions (17% of its total outside investment capital).
Meanwhile, investors aside, there have been a bunch of other signs that things are going south for SAC. The fund is closing its Chicago office and pumping up bonuses for portfolio managers by 3% to stop them from leaving the firm.
In Court, former SAC analyst Wesley Wang walked away from his insider trading guilty plea with a slap on the wrist (2 years probation without a fine) after wearing a wire and naming as many as 20 names connected to insider trading schemes, according to federal prosecutors.
Dipak Patel, a former SAC Capital portfolio manager, has been fingered by a mole, says the WSJ.
The undercover informant has told federal investigators that she passed confidential information to the trader for years.
Patel, who was a technology stock manager for Steve Cohen's hedge fund, has yet to be charged with any wrongdoing. He left SAC Capital in 2010.
Investigators have been concentrating their efforts on SAC Capital in a big way for years. The heat has been especially intense since last November, when federal prosecutors wrote that SAC CEO Steve Cohen interacted with alleged insider trader, Mathew Martoma in a complaint. Six former SAC employees have been convicted of or pleaded guilty to insider trading since 2009.
The informant in the Patel matter, Reema Shah, had worked as a technology specialist for the mutual-fund manager J&W Seligman & Co. She pleaded guilty last May in a New York federal court to trading inside tips with a former executive at Yahoo Inc. YHOO +1.04%...
A Seligman spokesman said: "We have strict policies and procedures that prohibit the use of material nonpublic information. Ms. Shah's actions were clear violations of these policies and a breach of our clients' and the company's trust."
Shah has been cooperating with the Feds since 2009.
Over at Dealbook Peter Lattman and Andrew Ross Sorkin report that new evidence has come to light that could help the defendant of the most profitable insider trading case in history, Mathew Martoma.
Last fall Martoma, a former portfolio manager at a subsidiary of Steve Cohen's hedge fund SAC Capital, was accused of using an expert to get inside information on two pharmaceutical companies, Elan and Wyeth. According to authorities, Martoma then advised SAC to trade on that information, and Steve Cohen (mentioned in the complaint as 'Portfolio Manager A') knew it.
The problem with those allegations now, says Dealbook, is that SAC may not have had the exposure to those pharmaceutical companies that authorities allege it did.
Internal SAC trading records, according to people directly involved in the case, indicate that the hedge fund did not have a negative bet in place in advance of the announcement of the drug trial’s disappointing results. Instead, the records indicated that SAC, through a series of trades, including a complex transaction known as an equity swap, had virtually no exposure — neither long nor short — heading into the disclosure of the drug data.
A different narrative surrounding the firm’s trading could help Mr. Martoma, who has pleaded not guilty to securities fraud and conspiracy in what the government calls the most lucrative insider trading case ever charged...
Still, perhaps more important, the trading records may complicate a government effort to pursue a case against Mr. Cohen. The SAC founder has not been accused of any wrongdoing, and has said he acted appropriately at all times.
A few more things that are making this case complicated — Martoma has yet to cooperate with the government, the statute of limitations on this case is closing in (this all happened back in 2008), and it simply isn't that weird for a hedge fund of SAC's size and sophistication to get in and out of big positions quickly.
The emails can make the person or their firm look bad and they can get taken out of context. It happens all the time.
It appears that Steve Cohen's $14 billion SAC Capital used to have a policy in place that would avoid this.
Bloomberg News' Greg Farrell reports that until the fall of 2008 SAC's emails would be automatically deleted if they were 30 or 60 days old, according to a two year-old deposition transcript from a case that was dismissed.
It's smart when you think about it. No one would want their emails made public. Ever.
Now this is also an interesting twist into the government's investigation of SAC. It's possible that the fund's email retention policy may have hindered the government's probe through a lack of formal email evidence, the report said.
July 2008, which is when the policy was in place, is a time period that would be of interest for the government.
Former SAC portfolio manager Mathew Martoma was charged back in November 2012 in what is believed to be "the most lucrative" insider trading scheme ever. The complaints against him allege that the insider trading scheme involved information in pharmaceutical companies, Elan Corporation and Wyeth, between the summer 2006 and mid-July 2008.
In the fall of 2008, SAC changed its email retention policy so it would keep emails.
Of course, this does not suggest any wrongdoing on SAC's part.
According to the WSJ, former SAC Capital analyst Jon Horvath says he was pressured by his superiors at the firm to get inside information on technology stocks.
Obviously, this isn't going to help SAC Capital's billionaire founder Steve Cohen. At the end of last year he was mentioned as 'Portfolio Manager A' in the insider trading complaint against former SAC Capital portfolio manager Mathew Martoma. In short, that means Cohen's not being accused of anything, but the Feds believe he is close to the matter.
Horvath's testimony will be used against Cohen and former SAC portfolio manager Michael Steinberg, says the WSJ. They've been trying to connect Cohen to six other insider trading convictions of former or current SAC traders since 2009.
Neither Cohen nor Steinberg have been accused of wrongdoing.
"Michael Steinberg did absolutely nothing wrong," said his lawyer, Barry H. Berke. "His trading decisions were based on detailed analysis" and information "he understood had been properly obtained through the types of channels that institutional investors rely upon on a daily basis."
SAC put Mr. Steinberg, 40 years old, on paid leave last fall, declining to specify the reasons for the move. Neither he nor Mr. Cohen has been accused of any wrongdoing.
An SAC spokesman declined to comment on Mr. Steinberg. The spokesman has said Mr. Cohen and the hedge-fund firm acted appropriately and will cooperate with the investigation.
Meanwhile, money is pouring out of the $14 billion fund. February 15th is the deadline for clients to turn in first quarter redemptions and some big names already have.
The firm has about $15 billion assets under management, $9 billion of which belongs to Cohen. The rest is outside capital.
Last year, the firm announced that investors had until yesterday to decide if they would pull their money. According to their agreement with SAC, they can pull 25% of their investment per quarter. That means about $660 million will leave the firm in Q1 and the full $1.68 billion will leave the fund by the end of 2013.
Now the government is investigating Mathew Martoma, another former SAC portfolio manager, in the most lucrative insider trading case in history. SAC's founder and CEO, Steve Cohen, was mentioned in the complaint but has not been accused of any wrongdoing.
SAC was up 2.5% net of fees in January and are in the black so far this month.
Kelly also reports that while some investors are pulling their money, Steve Cohen and other insiders adding capital. Additionally, if SAC continues its historic performance, making about $270 million a month gross of fees, it can make up for the money spilling out of the fund.
