The U.S. Securities and Exchange Commission (SEC) brought charges against legendary hedge fund manager, Steven A. Cohen, on Friday for failing to supervise two senior employees and prevent them from insider trading under his watch.
The SEC alleges that Cohen received highly suspicious information that “should have caused any reasonable hedge fund manager to investigate the basis for trades made by two portfolio managers who reported to him”. Instead, it says that he ignored the red flags and allowed them to execute the trades, which earned his hedge funds profits, and avoided losses, of more than US$275 million. The allegations have not been proven.
The SEC has already charged the two traders in question, and it notes that in connection with those cases, CR Intrinsic, an affiliate of Cohen’s firm, S.A.C. Capital Advisors, agreed to pay more than US$600 million in the largest-ever insider trading settlement. Another Cohen affiliate, Sigma Capital, agreed to pay nearly US$14 million to settle insider trading charges.
“Hedge fund managers are responsible for exercising appropriate supervision over their employees to ensure that their firms comply with the securities laws,” said Andrew Ceresney, co-director of the SEC’s Division of Enforcement. “After learning about red flags indicating potential insider trading by his employees, Steven Cohen allegedly failed to follow up to prevent violations of the law. In addition to the more than $615 million his firm has already agreed to pay for the alleged insider trading, the enforcement division is seeking to bar Cohen from overseeing investor funds.”