Steven Cohen and the hedge fund named after him insist they’ve done nothing wrong in response to a federal jury indicting the firm this morning. If federal prosecutors take SAC to trial, here’s what they’ll be telling the jury to focus on.
This is an excerpt from an email written by an SAC employee to Steve Cohen describing a potential hire in 2008. According to the grand jury indictment, SAC sought out precisely those portfolio managers and researchers who had lots of contacts within the industries and companies they covered and did little to confirm that the information they got, traded on, and passed on to Cohen wasn't obtained illegally.
When Michael Steinberg, who worked with Jon Horvath, received that email about Sun, he forwarded it to SAC's chief operating officer with the above attached to the message. The COO, prosecutors allege, did not think Horvath had indicated he had received inside information, but instead wrote that "my interpretation of his comment is just that he developed good relationships with mgmt. that enhance his comfort level."
The indictment says that the COO's interpretation of Horvath's message was "unsubstantiated" and that "Horvath's e-mail was based on confidential information about Sun earnings that Horvath had obtained from his contact at Sun." Steinberg will go on trial for insider trading in November. Steinberg plead not guilty to insider trading in Dell and Nvidia stock.
One of the reasons prosecutors brought charges against the firm as a whole is because of what they portray as a widespread culture of non-compliance and superficial compliance with insider trading rules. In 2009, according to the indictment, a new SAC employee sent an instant message to Cohen saying that he was going to short the stock of Nokia when he started working at the hedge fund ten days later. He then apologized for being "cryptic" and cited the compliance rules he had learned the day before.
The indictment says that Cohen did not do any followup on his new employee who was leaving information out of his rationales for a trade because he was scared of running afoul of compliance rules.
This is from an email by Jon Horvath, a portfolio manager, to Steven Cohen in October 2007. The email described how he had acquired information on Sun Microsystems which, according to the indictment, Cohen never asked if it had been acquired illegally. Horvath plead guilty last year to insider trading using non-public information on Dell and Nvidia. The phrase "edge," meaning information or insight on a stock no one else has, shows up throughout the indictment.
