Steven A. Cohen’s $10 billion dollar group of hedge funds “SAC Capital” has just been indicted by the Manhattan federal court on charges of four counts of securities fraud and one count of wire fraud.
The Securities and Exchange Commission (SEC) has been carefully investigating the company’s somewhat “suspicious” activity over the past few years. In March the company’s portfolio manager Michael Steinberg was arrested based on accusations that he used inside information to generate over $1.4 million in profits for SAC Capital.
Cohen’s hedge fund made “hundreds of millions of dollars of illegal profits” by employing people in the industry who were aware of trade secrets. According to the prosecutors, the scheme “was substantial, pervasive and on a scale without known precedent in the hedge-fund industry.”
George Venizelos, head of the FBI’s New York office, said that “SAC not only tolerated cheating, it encouraged it.”
Cohen founded SAC Capital in 1992 and eventually made it one of Wall Street’s largest hedge funds. If the feds manage to force Cohen to forfeit his assets in the company he could lose a fortune (over $8 billion.)
U.S. Attorney Preet Bharara, said: “I’m not going to say what tomorrow may or may not bring. The investigation is continuing.”
Is this the end of SAC Capital?
The indictment is going to negatively impact the company regardless of what happens tomorrow. At least, that’s what one professor at Columbia University Law School called John Coffee believes:
“In the case of a hedge fund, I think it’s difficult to have any relationship with investors once you’ve been indicted. There are just too many clouds on the horizon for any public investor to stay with them.”
However, the company made a statement saying that “SAC has never encouraged, promoted or tolerated insider trading and takes its compliance and management obligations seriously.” (Insider trading refers to using material non-public information to make money, gain an unfair advantage in the market, or pass on that data to others).
Time will only tell.