The SEC’s accusations have no merit and Cohen acted appropriately at all times, Jonathan Gasthalter, a spokesman for Stamford, Connecticut-based SAC at Sard Verbinnen & Co., said in a July 19 statement.
The SEC’s action is a damaging blow for Cohen, a trader who grew up in a middle-class family in New York’s Long Island and built his reputation as a genius “tape reader” able to sense the moves in stocks before they happen. His performance -- after taking as much as half the profits in fees -- has averaged 25 percent a year for the past two decades, far outpacing his hedge-fund rivals.
While he has never had a losing year in his own portfolio, investors have asked to withdraw billions of dollars from SAC, which managed about $6 billion for clients earlier this year, and $9 billion for Cohen and his employees.
$9 Billion Fortune
Cohen had risen to the pinnacle of the hedge-fund, philanthropic and art-collecting worlds. His roughly $9 billion personal fortune includes about $750 million in art, with pieces by Pablo Picasso, Andy Warhol and Jeff Koons. He lives in a 14- acre estate in Greenwich, Connecticut, with a basketball court and two-hole golf course. In 2011, he wrote a $13.35 million check to the Robin Hood Foundation, his charity of choice.
Speculation has long circulated within the hedge-fund world that SAC’s outsized returns could only be the result of insider trading, and the government has spent at least six years building a case against the billionaire.
The SEC’s July 19 order, which doesn’t identify the health- care analysts by name, alleges that Cohen failed to supervise Martoma and Steinberg, who have been charged with securities fraud. The agency presented new details that it said showed Cohen received “highly suspicious” information that should have caused any reasonable hedge-fund manager to investigate the basis for the alleged wrongdoing.
Martoma, 39, was arrested in November for alleged insider trading in Elan and Wyeth after receiving confidential information from Dr. Sidney Gilman in July 2008 that caused him and Cohen to abruptly abandon their bullish bets and sell their holdings. The trades earned SAC profits and avoided losses of more than $275 million, the government said. Steinberg was arrested in March for trading in Dell and Nvidia Corp. based on illicit tips given to him by his analyst. Martoma and Steinberg, 41, have pleaded not guilty.
SAC agreed in March to pay a record $616 million to settle SEC charges regarding Martoma’s and Steinberg’s trades. After the agreement, Cohen bought a $60 million vacation home in the Hamptons on Long Island. SAC has said it would indemnify clients against disgorgement of illegal profits and legal fees.
The pudgy, balding Cohen, an unassuming dresser who favors half-zip sweaters and nondescript shoes, may never have attracted the attention of the government were it not for a decision, in the early 2000s, to go from managing mostly his own money to building a global firm with more than a thousand employees working in offices from London to Hong Kong.