In the early years, SAC was made up of a close-knit group of traders, with Cohen attending basketball games and going on vacations to the Caribbean with them. One former employee described the firm at that time as the Wild West because there was little oversight over trading.
Throughout the 1990s, Cohen accounted for around half the profits, and he has repeatedly said it was a great time to make money because his assets were relatively small and there were few other hedge funds competing with him. In 1999, he posted a return of 68 percent, and as the technology bubble burst he did even better, ending 2000 up 73 percent, his best year ever.
By then, SAC was managing more than $1 billion. Ninety percent of that money was Cohen’s, and he would routinely return client capital because he felt returns would suffer if he had to invest larger amounts.
As the hedge-fund industry’s assets approached $500 billion, five times what they were when Cohen started SAC, former employees said he started dreaming of joining the ranks of the big firms such as Julian Robertson’s Tiger Management LLC and George Soros’s Soros Fund Management, which had both briefly surpassed $20 billion in assets.
Cohen already had proved that he was an ace trader, now he wanted to build a hedge-fund empire. In 2001, he started a New York-based unit, Sigma Capital, to trade debt and equity, organized by industry group. Three years later he created CR Intrinsic Investors LLC -- the initials standing for Cumulative Return -- which emphasized research and longer-term trades to accommodate SAC’s growing assets.
Both units held their own meetings with corporate executives and brokerages, bolstering market information gathered by SAC as a whole and increasing competition. It also enabled analysts to be directly linked to their trade ideas and rewarded for the ones that paid off.
In 2005, with this structure in place, Cohen ramped up marketing efforts. In the next two years, SAC’s assets jumped $10 billion on performance and new clients, reaching $16.5 billion by the end of 2007.
As Cohen crossed into billionaire territory, he raised his profile. He started collecting art and in 2004 joined the board of the Robin Hood Foundation. Last year he bought a stake in the New York Mets baseball team and was elected to the 45-member board of trustees of the Museum of Contemporary Art, Los Angeles.
Cohen’s success attracted scrutiny from the government. From at least 2007, investigators have been making inquiries about his trades. At least nine current and former SAC employees, including Martoma and Steinberg, have been linked to insider trading at the firm. Four have pleaded guilty.
The SEC said in last week’s order that Cohen failed to determine whether employees were engaged in “unlawful conduct” and to take steps to prevent violations of securities law. Martoma and the health-care analysts didn’t follow rules governing interactions with doctors involved in clinical trials, the agency added.
SAC said in its July 19 statement that the SEC ignored SAC’s “exceptional supervisory structure, its extensive compliance policies and procedures, and Steve Cohen’s strong support for SAC’s compliance program.”
Yet just two months ago, Cohen told investors that SAC was strengthening its compliance procedures, including restricting the use of industry consultants, such as Dr. Gilman, and contact with public-company employees.
In the past two months, as the government investigation of Cohen intensified, he stopped updating his clients on the probe, and reduced his trading in the Cohen Account. He also spent time earlier this month vacationing on a yacht in the Mediterranean.
A trader who has always been skillful at cutting his losses, he’s now vowing to stand his ground.