Business

SAC cheated as SEC preached

Monday, July 21, 2008, was a busy day for insider trading in the Stamford, Conn., offices of SAC Capital, the corrupt hedge fund run by billionaire Steve Cohen.

After the market’s close that day, former Securities and Exchange Chairman Harvey Pitt lectured SAC analysts and portfolio managers about the illegal activity.

“Avoid even the appearance of impropriety,” said Pitt’s slide show, which reminded the SAC moneymen that the penalties could include “monetary penalties,” a “damaged reputation” and even “prison terms.”

“If a trade is too good to be true, it probably is,” the presentation said, noting that SAC’s policies were even more stringent than the laws against trading on nonpublic material information.

The Pitt presentation was a government exhibit in the recent federal insider trading trial against former SAC portfolio manager Mathew Martoma, who was convicted of insider trading on Feb. 6 and faces up to 20 years in jail. He will be sentenced on June 20.

Apparently the message was too late, for some “very good [albeit illegal] trades” had been conducted at SAC that day and the previous trading day, Friday, July 18.

In fact, at the very hour Pitt was making his presentation, a San Jose, Calif., tech company called Brocade was announcing a $3 billion deal to buy another tech firm, Foundry Networks.

SAC already knew about it, an SEC civil indictment against former SAC tech analyst Ronald Dennis alleged Thursday, after he agreed to be barred from the securities industry and pay $200,000 to settle the charges.

Dennis had learned of the impending merger from an analyst at a San Francisco-based investment firm on Friday, July 18, the SEC complaint alleged. Immediately after finding out about the deal, he called his boss, an SAC portfolio manager who purchased 120,000 shares of Foundry within 20 minutes of the phone call, the SEC charged.

SEC made $550,000 off the deal when Foundry shares jumped 32 percent on July 22 — the day after the Brocade/Foundry deal was announced.

But that’s not all SAC was up to the day news of the deal broke and Pitt was giving a talk.

All day long, traders at SAC were secretly starting to unload shares of pharma stocks Elan and Wyeth, based on an illicit tip their boss Steve Cohen received the day before after a 20-minute phone call from Martoma.

On July 19, Martoma had traveled to Ann Arbor, Mich., where he learned the secret results of a trial on an Alzheimer’s drug that showed it didn’t work. He called his boss the next day to report the news, the government charged in Martoma’s federal insider trading trial.

Starting on Monday and continuing all week, SAC was surreptitiously dumping the shares, and then it began shorting them.

After the results were finally announced, on July 29, Elan and Wyeth shares collapsed, and SAC made $275 million in profits and averted losses — the largest inside trade in history.

SAC itself has pled guilty to criminal charges of insider trading and agreed to pay $1.8 billion in fines. It will no longer be allowed to take outside money but remains a force in the capital markets as a family office running Cohen’s $11 billion fortune.