SAC Capital Advisors hedge fund manager and founder Steven A. Cohen poses at an event organised by the non-profit organisation Mercy Corps Action Center to End World Hunger, in New York in this December 10, 2009 handout photo.
Credit: Reuters/Jenny Boyle -via PRNewsFoto/Peppe Communications
NEW YORK/BOSTON | Wed Feb 23, 2011 1:26pm EST
NEW YORK/BOSTON (Reuters) - Soon after prosecutors charged two of his former employees with trafficking in confidential corporate information earlier this month, Steven A. Cohen kicked his hedge fund's damage control operation into high gear.
In the morning, top managers at SAC Capital Advisors, LP's headquarters in Stamford, Conn., calmly fanned out to allay any concerns the 250 analysts and traders at the $13 billion fund firm might have about the insider trading charges against the two former employees, Donald Longueuil and Noah Freeman. A separate outreach program went on with SAC Capital's wealthy investors, some of whom had anxiously called up within minutes of the news hitting the wires.
By lunchtime, a spokesman for SAC Capital issued a statement calling Longueuil's and Freeman's actions "outrageous." It also said both men obviously circumvented SAC Capital's considerable compliance, deftly concealing their activities.
Three weeks later, Cohen's crisis management strategy appears to be paying off.
Judging by their words and wallets, SAC Capital's clients, including a large Blackstone Group investment fund, are giving the legendary 54-year-old trader the benefit of the doubt. Officials with several investment funds said that while the insider trading charges are unnerving, it's not enough to prompt them to pull money from the 19-year-old fund with a record of generating high double-digit returns.
Indeed, even in the wake of the February 8 charges, some people inside and outside the $1.9 trillion hedge fund industry are whispering that U.S. authorities, who have spent at least four years looking for evidence of wrongful trading at SAC Capital, may come up as empty-handed as Captain Ahab did in his hunt for the great white whale Moby Dick.
In talking with nearly two-dozen former SAC Capital employees, investors, money-managers, defense lawyers and former prosecutors, there is a sense that federal authorities are fighting last year's battle in focusing so much energy and resources on Cohen and his associates.
What has complicated the matter, these people say, is the fact that the SAC Capital of today is very different from the high-flying fund of 10 years ago. Back then, it was renowned for an anything-goes trading culture that routinely produced spectacular annual returns of 50 percent or greater. Nowadays, Cohen's shop still outperforms most hedge funds, but it no longer ranks at the top of the pack in terms of performance.
"Stevie has been investigated for so long and he is not trading the way he has in the past," said one former prosecutor now in private practice. "I would be shocked if they are able to get anything on him."
KANG AGAIN
It's no secret prosecutors and agents with the Federal Bureau of Investigation have been strenuously trying to make an insider trading case against either people who work for Cohen or who left SAC Capital to establish their own firms.
Two months after prosecutors charged billionaire trader Raj Rajaratnam in one of the biggest insider trading cases ever, Reuters reported in December 2009 that B.J. Kang, one of the FBI agents who arrested the Galleon Group co-founder, also had been investigating Cohen and his fund on-and-off since at least 2007, along with FBI agent David Makol.
Not surprisingly, Kang was the FBI agent who oversaw Longueuil's early morning arrest on February 8 at his Manhattan apartment. Kang also had a hand in the plea negotiations with Freeman, who has agreed to cooperate with authorities.
Still, the charges against the two men, both of whom had relatively brief stints at SAC Capital, are a far cry from implicating Cohen in anything improper. As one money manager who knows Cohen observed, SAC Capital's mostly wealthy individual investors appear to have a high tolerance for negative headlines, as long as the fund keeps generating better than average returns and Cohen himself isn't charged.
Another money manager, Jeffrey Vale, whose Infinity Capital Partners has money with Cohen, seemed unfazed by the insider trading charges. "This is something we will watch going forward," said Infinity Capital's chief investment officer.
Even though I have no use for corrupt Wall Street, this quote from the article highlights my concerns about some Federal investigations:
â??Diamondback Capital Management, another fund founded by former SAC Capital traders that was raided by the FBI in November, has also had a hard time calming investor angst over the investigation. To date, investors have asked to redeem $1.3 billion from the $5 billion fund.â?
My concern is the FBI, by villifying and raiding a firm, creates a self-fulfilling prophecy: Investors run to the exits, tempting the firm to commit the very trespasses the FBI is trying to nail it on.
However, if the firm maintains a stiff upper-lip and doesnâ??t violate laws in order to save itself, law enforcement agencies like the FBI â?? with all their noble intent â?? end up empty-handed as occurred as the articles expressed outcome to the above quote:
â??But unlike their former colleagues at Level Global, SAC alums Lawrence Sapanski and Richard Schimel are vowing to keep Diamondback in business and some prominent pension funds like the state of New Mexico are sticking with them.â?
The steadfastness of investors like the state of New Mexico suggests the firm might have been innocent from the get go, and therefore in hindsight (a wonderful thing) the FBI raid may have harmed other investors who prematurely pulled out.
Disgustedreader, So your observation is
â??My concern is the FBI, by villifying and raiding a firm, creates a self-fulfilling prophecy: Investors run to the exits, tempting the firm to commit the very trespasses the FBI is trying to nail it on.â??
How many viable, employment inducing, taxpaying corporations have these hedgefunds obliterated via naked short selling. I grew up in a time when million was the high end, now the number billion is thrown around like a norm, next thing you know it will be a trillion.
America, the World is not going to accept this wordsmithing leagalies as a means to richs anymore. I say put all these middle class destroyers in jail. NOW
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