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Tuesday, 02 September 2014

Cohen, Cohen, gone?

Maybe SAC should forget about other people's money

Maybe SAC Capital should forget about managing other people’s money. Steve Cohen’s $15 billion hedge fund firm is paying a whopping $616 million to settle Securities and Exchange Commission insider trading charges. It would be an ignominious time to follow legends like Stanley Druckenmiller, but Cohen is already losing over a quarter of some $6 billion of outside investor funds this year. It could be time to focus mainly on looking after his own cash.

SAC says it is happy to put the SEC’s allegations behind it, without admitting or denying them, even though it is costing the firm more than Goldman Sachs paid in 2010 to settle fraud charges relating to its infamous Abacus collateralized debt obligation. There is still an ongoing criminal investigation, however, and given the SEC’s seeming focus in recent years on people associated with SAC, there’s no guarantee the watchdog is finished with business tied to Cohen.

Most typical institutional investors would have pulled their money long ago, and SAC’s remaining clients must have strong tolerance for alarming news and swirling rumors. And the firm, not its funds, will swallow the payments to the U.S. government. Even so, investors have given notice they will withdraw about $1.7 billion over the course of this year. Some, like Blackstone’s fund of funds unit, previously said they would essentially wait and see what happened before deciding about redeeming more. With the settlement in the bag they may feel relieved for now, even if SAC isn’t entirely in the clear.

Cohen hasn’t been charged with anything and doesn’t lack for fortitude, but with $9 billion-odd of his own and close associates’ money in hand, he might eventually conclude that worrying about outside investors isn’t worth it. Other hedge fund stalwarts have decided as much. Druckenmiller, for example, closed his firm in 2010 to focus on managing his own money and playing golf. The former close colleague of George Soros also implied that running more than $10 billion didn’t allow him to make good enough returns. If Cohen ever opts to go the same route, that reasoning offers him - and maybe his stoic investors, too - a relatively graceful cover story for an exit.

Context News

An affiliate of Steven Cohen’s SAC Capital agreed to pay more than $600 million to settle U.S. Securities and Exchange Commission charges that it participated in an insider trading scheme, the largest settlement ever in an insider trading case, the SEC said on March 15.

The affiliate, CR Intrinsic Investors, had been charged with insider trading in November, when the SEC said one of its portfolio managers, Mathew Martoma, illegally obtained confidential details about a clinical trial for an Alzheimer’s drug developed by pharmaceutical company Elan.

The settlement, filed in federal court in Manhattan and subject to a judge’s approval, requires CR Intrinsic to pay $275 million in disgorgement, $52 million in prejudgment interest, and a $275 million penalty.

The SEC also said another hedge fund firm with ties to SAC, Sigma Capital Management, agreed to pay nearly $14 million to settle a separate insider trading case relating to transactions in Dell and Nvidia securities.

In an emailed statement, SAC said: “We are happy to put the Elan and Dell matters with the SEC behind us. This settlement is a substantial step toward resolving all outstanding regulatory matters and allows the firm to move forward with confidence. We are committed to continuing to maintain a first-rate compliance effort woven into the fabric of the firm.”

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