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SEC Brings Civil Charges Against Cohen, Asks For Ban

Posted in SEC Enforcement Cases

Friday afternoon, the Securities and Exchange Commission (“SEC”) announced that it filed charges against Steven Cohen, manager of SAC Capital Advisors (“SAC Capital”), for failing to adequately supervise his employees and ignoring signs of suspicious trading activity. Cohen is alleged to have missed warning signs that “any reasonable hedge fund manager” should have seen, though the charges fall short of alleging Cohen was directly involved in insider trading. The SEC alleges SAC Capital realized $275 million in profits or avoided losses, and is asking for Cohen to be banned from overseeing investor funds.

The charges are the latest chapter in the saga between the SEC and Cohen’s firm, which has seen two SAC Capital employees charged with insider trading and an SAC Capital affiliate agreeing to the largest settlement in SEC history. For many months speculation had grown that the SEC would charge Cohen personally.

In the previous charges brought against SAC Capital employees, the SEC alleged insider trading. In the first set of charges, an employee of CR Intrinisic (an SAC Capital affiliate) allegedly used non-public clinical trial results of two pharmaceutical companies, Elan and Wyeth. In the second, an SAC Capital employee allegedly had non-public information on an upcoming Dell earnings release, and used it to avoid huge losses to the firm. 

On Friday, the SEC disclosed communications between Cohen and these employees, including instant messages and emails, that should have caused him to investigate more into the nature of the employees’ information.  Under Section 204A of the Investment Advisers Act, investment advisers are required to establish and enforce policies, on themselves and their employees, to prevent the misuse of nonpublic information.

Read the complaint here.

Further Coverage: Financial Times, New York Times, Wall Street Journal