Cohen dream of Soros status dies as SAC plea mars his record

Steven Cohen (Source: Bloomberg) Steven Cohen (Source: Bloomberg)

In the hedge fund record books, there will always be doubts about how Steven A. Cohen outperformed rivals for more than 20 years.

Cohen, the billionaire founder of SAC Capital Advisors LP, is arguably the best stock trader of all time, a renowned “tape reader” with an uncanny ability to predict where prices are headed. The Stamford, Connecticut-based firm’s investment returns for clients averaged 25% over the past two decades, and Cohen never posted a losing year in the portfolio he personally oversees.

Yesterday, SAC agreed to plead guilty to securities and wire fraud, pay $1.8 billion in fines and forfeitures, and stop managing money for outside investors. The firm had denied wrongdoing since being indicted in July. Like Barry Bonds, the professional baseball player whose home-run records have been tainted by allegations of illegal steroid use, Cohen won’t be able to escape this question: did he excel by cheating?

SAC “focused on hiring the best talent, talent who was equipped with extensive networks to circumvent traditional lines of communication,” April Brooks, FBI special agent in charge of the New York office’s criminal division, said at a press conference yesterday. “Talent who would be prepared to get confidential information to fuel their illicit trades.”

Grand Ambition

For Cohen -- whose fortune is valued at $9 billion, according to the Bloomberg Billionaires Index -- the reputational damage is a greater punishment than the penalties he will pay, according to friends and people who have worked with him. He is, more than most big-name hedge-fund managers, obsessed with winning, whether at golf or at building an investment empire.

Cohen’s goal has always been to be acknowledged as something greater than a masterful trader, say the friends and colleagues, who asked not to be identified to avoid hurting their relationship with him. Rather, he wants to be included in the pantheon of world-class money managers such as Warren Buffett and George Soros, whose savvy investing history and prescient market calls draw a following on Wall Street, these people say.

Now he’ll be infamous for his firm’s record fine for insider trading.

Probe Continues

SAC’s penalty includes $616 million that it agreed to pay in March to settle a related civil lawsuit by the U.S. Securities and Exchange Commission. Under the plea agreement, the firm will close its hedge funds to outside investors. The government’s investigation of insider trading at SAC continues, Manhattan U.S. Attorney Preet Bharara said yesterday at a news conference. The plea deal with the firm doesn’t provide immunity to any individual.

Cohen, 57, who wasn’t charged in the indictment, has said he has acted appropriately.

SAC said yesterday in a statement that it takes “responsibility for the handful of men who pleaded guilty and whose conduct gave rise to SAC’s liability. These wrongdoers do not represent the 3,000 honest men and women who have worked at the firm during the past 21 years. Even one person crossing the line into illegal behavior is too many and we greatly regret this conduct occurred.”

Cohen was the ultimate prize for the government, the target they had pursued for years in an investigation that mushroomed into the largest insider-trading probe in history. At least 87 people have been charged by prosecutors since August 2009, of which 75 have been convicted.

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