The SEC charged Steven A. Cohen, founder and CEO of S.A.C. Capital Advisors, with failure to supervise two senior employees and stop them from conducting insider trading within S.A.C. affiliated hedge fund managers.
The SEC initiated administrative proceedings on Friday that will determine “what relief is in the public interest” against Mr. Cohen, possibly including financial penalties and a supervisory and financial services industry bar, according to an SEC news release.
The SEC's administrative order alleges Mr. Cohen received “highly suspicious information that should have caused any reasonable hedge fund manager to investigate the basis for trades made by two portfolio managers who reported to him — Mathew Martoma and Michael Steinberg. (Mr.) Cohen ignored the red flags and allowed (Messrs.) Martoma and Steinberg to execute the trades,” according to the release.
Mr. Steinberg was a portfolio manager at Sigma Capital Management and was indicted in March on counts of conspiracy and securities fraud in connection with alleged insider trading involving Dell Inc. Mr. Martoma, a portfolio manager at CRI Intrinsic Investors, was indicted in November 2012 on charges that he traded based on insider tips regarding Elan Corp. and Wyeth. The SEC's release said insider trading by Messrs. Martoma and Steinberg helped the two S.A.C. affiliates make money and avoid losses.
“After learning about … potential insider trading by his employees, Steven Cohen allegedly failed to follow up to prevent violations of the law. The Enforcement Division is seeking to bar (Mr.) Cohen from overseeing investor funds, in addition to the more than $615 million his firm has already agreed to pay for the alleged insider trading,” said Andrew J. Ceresney, co-director of the SEC's Division of Enforcement, in the release.
Mr. Cohen maintains his innocence, said S.A.C. spokesman Jonathan Gasthalter in an e-mail.
“The SEC's administrative proceeding has no merit,” Mr. Gasthalter said.
“Steve Cohen acted appropriately at all times and will fight this charge vigorously. The SEC ignores S.A.C.'s exceptional supervisory structure, its extensive compliance policies and procedures, and Steve Cohen's strong support for S.A.C.'s compliance program," he added.