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SEC says SAC Capital manager 'stood by' while staff broke laws

July 22, 2013 at 2:37 PM   |   Comments

NEW YORK, July 22 (UPI) -- U.S. regulators say billionaire hedge fund manager Steven Cohen "stood by" while his employees were involved in questionable trading.

In charges filed in court accusing Cohen of neglecting his duties as a manager, the Securities and Exchange Commission said Cohen, the billionaire founder of SAC Capital Advisors, "allowed his traders to execute the recommended trades and stood by," despite being "faced with red flags of potentially unlawful conduct by employees under his supervision."

Court papers allege Cohen knew his staff members were having discussions with classic insider trading sources, such as doctors involved in clinical drug trials and executives at U.S. corporations, The New York Times reported Monday.

Preet Bharara, the U.S. attorney in New York City, said in a recent interview that some firms paid "lip service" to federal regulations, but that those who are frequent violators must also face the consequences.

Cohen said in a disposition in a separate case in 2011 that he had "read the [SAC] compliance manual, but I don't remember exactly what it says."

In 2008, the Times said, SAC, which now has 1,000 employees, had a compliance department with only 10 staff members, although that has been beefed up to 40 since the investigations into the firm's trading behavior began.

Certainly a strike against Cohen is that four former SAC employees have pleaded guilty to charges related to insider trading, while five others have been implicated, the Times said.

Cohen could be banned from work in the financial industry if found guilty of neglecting his duties as a hedge fund manager.

The Times said the SEC case could also provide the Department of Justice with evidence that could be used to build a conspiracy case against SAC, charging the company with insider trading above and beyond the employees who have been charged.

In the case against Cohen, "the standard of proof is substantially lower here than with an insider trading charge, which would require showing knowledge or recklessness," former SEC attorney Paul Huey-Burns said.

"A failure-to-supervise case requires only a showing of negligence, that Mr. Cohen was essentially careless in his oversight of the firm," Huey-Burns said.

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