The Securities and Exchange Commission filed a civil case Friday against Corporation trustee Steven A. Cohen P’08 P’16 for “failing to supervise” managers accused of insider trading at SAC Capital Advisors L.P., the powerful hedge fund he founded and owns, federal regulators announced.
The civil action is an administrative proceeding — less severe than a lawsuit — and does not accuse Cohen of engaging in insider trading or fraud. But if the case is successful, Cohen would be prohibited from overseeing investor funds, effectively forcing him out of his current position at SAC’s helm.
Officials from the University and the Corporation did not respond to phone calls or emails Friday requesting comment on whether the case could affect Cohen’s status as a trustee.
In April, Chancellor Thomas Tisch ’76 said the arrest of Michael Steinberg, a former SAC employee, had not prompted any plans to reconsider Cohen’s position in the Corporation.
The SEC’s move is the latest in a string of insider trading investigations, many of which have targeted SAC. Prosecutors have implicated nine current or former employees, four of whom have pled guilty, over the past few years. In March, the fund paid out roughly $616 million in settlements to the federal government over two cases of insider trading.
Regulators are widely perceived to have been circling Cohen himself, and he could face further charges in the continuing investigation. But they have failed to tie him directly to insider trading.
The civil action announced Friday targets Cohen for mismanagement. “After learning about red flags indicating potential insider trading by his employees, Steven Cohen allegedly failed to follow up to prevent violations of the law,” said Andrew Ceresney, co-director of the SEC’s Division of Enforcement, in a statement.
An SAC spokesman said in a statement that the case was without merit and that Cohen “will fight this charge vigorously,” the New York Times reported.
The action focuses specifically on Cohen’s interactions with two portfolio managers, Mathew Martoma and Steinberg, who have both been charged in criminal cases. Prosecutors argue the nature of the information the portfolio managers provided Cohen should have prompted him to investigate their sources. Together, the pair’s alleged insider trading schemes yielded over $275 million for SAC in profits and averted losses.
Both alleged incidents took place in the summer of 2008. Martoma is accused of capitalizing on his relationship with a University of Michigan physician who funneled information to him about clinical trials of a drug to treat Alzheimer’s disease before it was made public. Regulators have pointed to a 20-minute phone call between Martoma and Cohen soon before Cohen began selling SAC’s stocks in Elan and Wyeth, the pharmaceutical companies that manufactured the drug. But there is no evidence that Cohen knew he was using information gleaned through allegedly improper channels.
In the latter instance, private information about Dell’s quarterly earnings allegedly made its way to Steinberg and then to Cohen, who sold SAC’s entire position within two hours of receiving the information and congratulated Steinberg in an email later that day.
Jon Horvath, an analyst at an SAC affiliate who initially passed the information to Steinberg, has pled guilty. Martoma’s and Steinberg’s trials will begin separately in November.
The SEC has declined to comment further on potential penalties in the case against Cohen.
-With additional reporting by Sam Heft-Luthy