Investigations

Steven Cohen Identified in New Insider Trading Suit


(An earlier version of this story ran online.)

After Steven Cohen’s hedge fund SAC Capital Advisors pleaded guilty to charges that it was engaged in firmwide securities fraud in November, it looked as if the multiyear, multiagency investigation, which led to insider trading charges against eight former employees, was winding down. Then on March 13, the Securities and Exchange Commission filed civil charges against yet another former SAC employee for alleged insider trading, a move that suggests the government isn’t quite done scrutinizing Cohen and his company.

$9b

Amount Cohen has left to manage after returning outside money

Ronald Dennis, a former analyst with CR Intrinsic Investors, an SAC unit, was charged with trading shares of Foundry Networks and Dell in 2008 and 2009 based on illegally obtained information. The trades brought in $3.8 million in profits and avoided losses for SAC and CR Intrinsic, according to the SEC. Dennis agreed to be barred permanently from the securities industry and to pay $200,000 to settle the charges.

Without naming them, the SEC’s complaint refers to three SAC employees who, it alleges, traded on information that Dennis provided: “Portfolio Manager A,” whom Dennis worked for in 2008, who bought Foundry and Dell shares; “Portfolio Manager B,” whom Dennis started to report to in 2009 and who traded Dell shares; and “Portfolio Manager C,” who, the SEC alleges, earned profits of $1.1 million trading in Dell in August 2009 after speaking with Portfolio Manager B, who had received information from Dennis.

According to people with knowledge of the matter who asked not to be named because the details are not public, Portfolio Manager A is Alec Shutze, Dennis’s former boss at CR Intrinsic; Portfolio Manager B is Eric Gerster, who became Dennis’s boss after Shutze left the firm; and Portfolio Manager C is Cohen. Shutze could not be reached for comment. Gerster declined to comment. Cohen, through spokesman Jonathan Gasthalter, declined to comment.

Westport (Conn.) volunteer firefighter Alec ShutzePhotograph by Dave Matlow/WestportNow.comWestport (Conn.) volunteer firefighter Alec Shutze

After leaving SAC, Shutze joined the hedge fund Marshall Wace in Connecticut, although he hasn’t worked there since October 2013, according to a spokesman. He also joined the Westport (Conn.) volunteer fire department.

Gerster, according to a person familiar with the firm, became rattled after the insider trading arrest of Galleon Group co-founder Raj Rajaratnam in October 2009 and resigned from SAC shortly afterward, citing the stress that the high-profile government investigation had caused him. Gerster sat for several hours of exit interviews that were referred to internally as a “deposition” with SAC’s lawyers at Willkie, Farr & Gallagher before he left the company—which was highly unusual, the person says. Gerster later joined Guggenheim Global Trading and, in 2013, Millennium Management.

In November, SAC Capital agreed to pay a total of $1.8 billion in fines to civil and criminal authorities as part of its guilty plea and has pledged to amend its practices. The settlement is set to be approved by a federal judge on April 10. SAC, which once managed a peak of about $16 billion, has returned all outside investor money and has refashioned itself as a family office with a new name, Point72 Asset Management, which will invest Cohen’s own fortune, estimated at almost $9 billion. The SEC filed a civil case against Cohen accusing him of failing to supervise his employees; it has yet to be resolved.

The Dell trades in the Dennis case are some of the same ones that formed the heart of the case against former SAC portfolio manager Michael Steinberg, who was convicted of insider trading in December and is appealing the verdict. According to the SEC, Dennis had been receiving tips about Dell through a chain of hedge fund analysts: Dennis spoke with Jesse Tortora, a former analyst at hedge fund Diamondback Capital, who’d been getting information from Sandeep Goyal, then an analyst at asset management firm Neuberger Berman, who had a source at Dell.

“On the afternoon of August 26, 2009, Portfolio Manager B informed Dennis that Portfolio Manager B was supposed to speak with Portfolio Manager C at S.A.C. Capital about Dell,” the SEC’s complaint reads. “Portfolio Manager B asked Dennis to ‘call me first,’ to which Dennis replied ‘k,’ … Later that day, Portfolio Manager C purchased 500,000 shares of Dell stock on behalf of an S.A.C. Capital hedge fund.” The complaint adds that both Dennis and Gerster were “tagged,” or given credit for the stock recommendations, in Cohen’s own trading account. The SEC’s case against Dennis suggests there may be more insider trading charges to come.

The bottom line: Charges against a ninth former SAC Capital employee may signal that the government isn’t done investigating the firm.

Kolhatkar_190
Kolhatkar is a features editor and national correspondent for Bloomberg Businessweek. Follow her on Twitter @Sheelahk.

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