Feds Turn Up The Heat on Billionaire Mogul Steven Cohen
In Response To: SAC Executive
Arrested in NY (Jordon)
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Hedge-fund
titan Steven Cohen is back in the headlines after the arrest of one of his
long-time portfolio managers on Friday, the latest in a series of
insider-trading cases that have focused scrutiny on his firm.
Michael
Steinberg, apprehended in Manhattan on Friday morning, is one of at least
seven current or former SAC Capital employees to be charged in
insider-trading cases over the past few years.
SAC is
renowned as one of the country's top investment firms, generating annualized
returns averaging more than 25% since it was founded in 1992. Cohen himself
is a Wall Street celebrity, with a net worth estimated at $9.3 billion by
Forbes Magazine.
SAC's
mounting legal troubles, however, have brought the firm unwanted attention,
and threaten to ensnare Cohen himself. With Steinberg's arrest, the
government is likely hoping to "work its way up the chain" to
Cohen, said Michael Weinstein, a defense attorney and former federal
prosecutor.
"This
is absolutely standard operating procedure for bringing a big defendant
down," Weinstein said. "The government's going to continue to
pressure people around him."
Steinberg,
who's been with SAC since 1997, pleaded not guilty in a court appearance
Friday morning and posted $3 million bail.
"Mike
has conducted himself professionally and ethically during his long tenure at
the firm. We believe him to be a man of integrity," SAC spokesman
Jonathan Gasthalter said in an email.
Cohen
himself hasn't been accused of any wrongdoing, and the firm has repeatedly
denied that he has done anything improper.
But
investors have been monitoring the government's SAC cases warily, requesting
the withdrawal of more than $1.68 billion before the quarterly deadline to do
so last month.
The
firm was already under pressure after federal officials levied charges in
November against Mathew Martoma, a former portfolio manager at an SAC
subsidiary, accusing him of participating in a $276 million insider-trading
scheme. That indictment claims Cohen made trades based on Martoma's
recommendations, though it does not allege that Cohen knew Martoma had
obtained information illegally.
Martoma
has denied the allegations against him, though other SAC alums have struck
cooperation deals with the government. That group includes former analyst Jon
Horvath, whose testimony is likely to figure in the case against his one-time
boss, Steinberg.
Among
the charges Steinberg faces are four counts of securities fraud, each of
which carries a maximum sentence of 20 years in prison. The government has a
sterling record in insider-trading cases -- 71 convictions and no acquittals
since August 2009 -- and analysts say prosecutors will likely put serious
pressure on Steinberg to testify against Cohen.
"They're
going to start exerting pressure on Steinberg and exerting pressure on
Martoma," said Michael Bachner, a lawyer who has represented defendants
in insider-trading cases. "They are looking to try and get as many
individuals charged who could cooperate and corroborate each other."
On the
civil side, SAC agreed earlier this month to pay more than $600 million in a
settlement with the Securities and Exchange Commission over the trades at
issue in Martoma's case. In a court hearing Thursday, however, a federal
judge reportedly questioned why the firm was allowed to settle without
admitting or denying wrongdoing, raising doubt as to whether the settlement
will be approved.
The
firm reached a $14 million settlement with the SEC over the trades in
Steinberg's case, though that also awaits court approval.
In the
meantime, both the SEC and the Justice Department say their investigations
are continuing. As for Cohen, he's apparently finding ways to take his mind
off the controversy -- reports emerged this week that he recently purchased
Picasso's "Le Reve" for $155 million, the most expensive art
purchase ever by a U.S. collector.
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