SAC Capital Advisors LP, Steven Cohen’s $15 billion hedge-fund firm, told investors it’s no longer cooperating unconditionally with the U.S. government’s insider-trading investigation.
Because of confidentiality agreements, there will be limited disclosure for now on the progress of the investigation, according to a letter sent to clients today, portions of which were provided to Bloomberg News. The firm said it expects there will be “substantially more clarity” in coming months.
SAC is taking a more defensive stance “either because they’ve given enough cooperation for the government to conclude there hasn’t been any wrongdoing or because the government is signaling that it intends to continue pursuing SAC and its current or former employees,” said Marc Powers, New York-based head of securities litigation at law firm Baker & Hostetler LLP. Powers isn’t involved in the case.
SAC in March reached a $602 million settlement with the U.S. Securities and Exchange Commission over claims the firm and one of its units profited from illegal tips about a drug trial received by former portfolio manager Mathew Martoma. The SEC said at the time the investigation of SAC was continuing.
The Martoma case, which centered on trades in drugmakers Elan Corp. and Wyeth Inc., was the first to link Cohen directly to alleged inside information, though the billionaire hedge-fund founder hasn’t been accused of any wrongdoing. The statute of limitations to indict anyone involved in the trades expires in July.
Jonathan Gasthalter, a spokesman for the Stamford, Connecticut-based firm, declined to comment on the letter. Ellen Davis, a spokeswoman for Manhattan U.S. Attorney Preet Bharara, and SEC spokesman John Nester also declined to comment on SAC’s disclosure.
The letter could indicate that either the SEC or the U.S. attorney may be preparing to sue or indict Cohen, said lawyers who asked not to be named because of the sensitive nature of the case. Before today, SAC had said it was cooperating with the investigation.
The missive could also be a sign that SAC is fed up with the length, demands and costs of the multiyear investigation that has already linked at least nine current or former employees to insider trading while working at the firm.
“More often than not, hedge-fund managers feel that the SEC demands more information than it is entitled to, or is not sensitive to the costs related to providing the information” in the course of an investigation, said Ron Geffner, a partner at Sadis & Goldberg in New York who was previously an enforcement lawyer with the SEC.
Some of those costs include fleeing clients. In February, investors asked to pull $1.68 billion from the fund. About $660 million was returned at the end of March, with the remainder coming out by the end of the year. Last week, SAC told clients it was extending the deadline to ask for withdrawals for the second quarter to June 3 from mid-May. It also recently told them it was beefing up its compliance.
SAC is also under pressure from shareholders in Elan and Wyeth, now a unit of Pfizer Inc. (PFE:US), who are seeking damages related to the Martoma trades. Elan shareholders have said SAC owes them at least $685.6 million. SAC has argued that its SEC settlement means the Elan shareholders aren’t entitled to any money for the alleged insider trading.
Last month, U.S. District Judge Victor Marrero conditionally approved SAC’s settlement with the SEC. Marrero ruled April 15 that the settlement can go forward, while saying it remains subject to a ruling by the U.S. Circuit Court of Appeals in New York in a case involving an earlier SEC settlement with Citigroup Inc.
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