Billionaire investment honcho Steve Cohen was accused yesterday of failing to supervise two top traders who are going to trial for insider trading.
The civil action, the first charges brought against the hedge-fund mogul after years of criminal and civil probes, could result in the 57-year-old Greenwich, Conn., money man being barred from handling outside investors’ money.
The accusation was filed by Mary Jo White’s Securities and Exchange Commission, which earlier this year settled an insider trading case against Cohen’s SAC Capital Advisors for $616 million.
Federal prosecutors are still pursuing criminal insider-trading charges against Cohen, sources said.
Cohen’s hedge funds manage around $15 billion, including roughly $7.5 billion that is estimated to be his personal money and would not be affected by an industry ban.
According to the SEC, Cohen “failed to take reasonable steps to investigate and prevent” securities violations by former portfolio managers Mathew Martoma and Michael Steinberg — both of whom are facing trial in the coming months on charges of insider trading.
A Cohen spokesman said the action “has no merit.”
“Steve Cohen acted appropriately at all times and will fight this charge vigorously,” he said, citing “Cohen’s strong support for SAC’s compliance program.”
Martoma, a former trader in SAC’s CR Instrinsic unit, stands accused of helping SAC earn a tidy $276 million trading Elan and Wyeth based on tips he allegedly gleaned from a doctor overseeing a joint clinical drug trial.
Steinberg, who worked at SAC’s Sigma Capital unit, is facing trial in November for trading shares of Dell and Nvidia on allegedly illegal tips he received from his analyst Jon Horvath, who has pleaded guilty and is cooperating with prosecutors.
In both cases, Cohen was aware of suspicious trading activity and yet did nothing to stop it, the SEC said.
For example, in late August 2008, Cohen sold 500,000 shares he had in Dell after receiving a “highly suspicious email” from Horvath about the computer maker’s upcoming quarterly results, the SEC alleged.
In the email, Horvath told another SAC employee, Gabe Plotkin, that he and Steinberg were betting Dell’s shares would fall because Horvath got a “2nd hand read from someone at the company” that the computer maker would report disappointing gross margin numbers.
“Please keep to yourself as obviously not well known,” Horvath told Plotkin, who then forwarded Horvath’s email to another SAC trader whose job it was to keep Cohen apprised of important trading info.
That trader then sent the email to Cohen’s home and office email addresses and phoned him shortly thereafter.
A few minutes after the 48-second call, Cohen began selling all his Dell shares, the SEC said.
A few days later, on Aug. 28, Dell announced gross margin results that were substantially worse than what Wall Street was expecting.
Three hours after Dell’s announcement, Cohen emailed Steinberg: “Nice job on Dell,” the SEC said.