Frank A. Rubino , ESQ.

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Fraud and Insider Trading Charges: Is The SEC Pursuing SAC?

Steven Cohen and his legendarily successful firm, SAC Capital Advisors, have attracted attention from government agencies for years. As the Wall Street Journal reported, "regulators have suspected that [Cohen's] success partly stemmed from insider trading." SAC Capital has been in the news twice in the last week. Just days after federal authorities announced a criminal case against one of its former portfolio managers named Matthew Martoma, the firm disclosed that the SEC is also considering a civil case against it for fraud.

Both of these developments might indicate a broader federal interest in pursuing Cohen himself on insider trading and securities fraud charges. Although authorities have not accused Cohen of any wrongdoings, some experts believe that the government's other steps all point towards a future case.

In its case against Martoma, the prosecutors claim that he sought advantageous insider information from a neurology professor. That information allegedly allowed Martoma and SAC to make large profits by investing in a new drug to treat Alzheimer's disease. Authorities have accused five other SAC employees of insider trading in the last three years alone.

One big reason these developments might point towards a case against Cohen is that he represents his firm's largest investor. The Wall Street Journal reports that he has invested $8 billion of his own funds with SAC and that he makes around 75% of its profits. In many less tangible ways, Cohen is the heart and soul of his phenomenally successful company.

If the government believes these profits are based largely on insider trading and other allegedly fraudulent activities, it could very well seek to pursue Cohen as well.

Source: The Wall Street Journal, "For SAC's Cohen, New Battleground in an Old Fight," Susan Pulliam, Nov. 28, 2012

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