Hedge fund wizard Stevie's bad month
First his man loses the election, then a former employee faces insider trading claims
Nikhil Kumar is The Independent's New York correspondent. He was formerly assistant editor on the foreign desk and has also done a variety of jobs on the city desk, where he wrote about markets, commodities and other business and economics topics.
Thursday 29 November 2012
It's been a bad November for Steve Cohen. On election night, the hedge-fund wizard was, according to a report, among the legion of billionaires who'd assembled in the ballroom at the Boston Exhibition and Convention Centre to herald President Romney. And then, a fortnight on from the Republican nominee's drubbing at the polls, Mr Cohen's name was linked to alleged insider-trading perpetrated by a former employee.
Two days ago, during a conference call, he told clients that his $14bn (£8.7bn) SAC Capital hedge fund – a business he founded with just $26m in capital – could face civil claims after the US market regulator issued a notice indicating that it was considering filing charges, reportedly connected to the insider-trading case.
Mr Cohen and SAC have not been charged, nor have they been named in the criminal action against Mathew Martoma, an ex-portfolio manager at CR Intrinsic, an SAC fund.
While still working for SAC, Mr Martoma stands accused of trading shares in two pharmaceutical companies after obtaining secret details about ongoing drug trials. Prosecutors allege that, based on this insider knowledge, he recommended trades to his "hedge-fund owner," widely identified as Mr Cohen. Mr Martoma's lawyer has said he is confident his client will be exonerated.
Though damaging for any business, the allegations against Mr Martoma and the threat of civil action by the Securities and Exchange Commission (SEC) may be all the more problematic for SAC, coming as they do after a series of cases involving ex-employees.
At least six former workers have been implicated in insider trading while at SAC. Prosecutors have secured three convictions.
Recently, in a high-profile instance in 2009, investigators looking into the Galleon insider-trading scandal reportedly probed the activities of an unnamed ex-SAC analyst – though neither SAC or Mr Cohen was accused of any wrongdoing.
"In some respects I feel like Don Quixote fighting windmills. There's a perception, and I'm trying to fight that perception," Mr Cohen said in a 2010 Vanity Fair interview.
He was referring to what he saw as attempts by the press to tar his firm's reputation by suggesting, often obliquely, that something wasn't right about the way it generated eye-popping returns. SAC's – and Mr Cohen's – success has, if nothing else, certainly been noteworthy.
The tech-bubble was a defining moment for the Long Island-bred son of a garment manufacturer.
He was among the handful of savvy investors who made money not just as the froth built up, but also, and in spectacular fashion, when the facade cracked, betting against overvalued stocks before they dropped.
His nous for investing has, over the years, made the 56-year-old a bona fide Wall Street legend, reputedly recognized in the gilded halls of high-finance simply by his nickname "Stevie".
SAC's returns are said to have averaged at around 30 per cent over the last two decades. In the process, Mr Cohen has become a very, very rich man, boasting a net worth of $8.8bn, according to Forbes, which lists him one of the richest men in the world (No. 40 in its list of the 400 richest people in America and No. 106 in its roster of the world's billionaires).
With such wealth, he's also emerged as a potent force in the art world. Valued, according to reports, at around $1bn, his collection is reported to span everything from Picasso and Monet to Francis Bacon (the British painter's Screaming Pope hangs outside the master bedroom of his sprawling Connecticut mansion, according to Vanity Fair) and Jeff Koons.
His growing profile – he was a prominent Wall Street supporter of Mr Romney's bid for the presidency and is an investor in the New York Mets professional baseball team – has at times magnified the whispers about SAC (and roused the interest of scandal-seeking tabloids, who a couple of years ago gleefully reported on his ex-wife's charge that he had hidden his wealth from her).
But all that is a sideshow to his real business of making money, once again under the scanner following the case against Mr Martoma.
"By cultivating and corrupting a doctor with access to secret drug data, Mathew Martoma and his hedge fund benefited from what might be the most lucrative inside tip of all time," Preet Bharara, the aggressive district attorney for New York's Southern District, said last week.
The key allegation is that Mr Martoma obtained insider information from a doctor about clinical trials of a Alzheimer's treatment being developed by Elan and Wyeth.Learning that the trial wasn't going well, he is alleged to have used the information to help SAC avoid some $194m in losses and then, by betting against the stocks, booking some $83m in profits. In all, an alleged benefit of some $276m, which, the complaint filed with US magistrate judge Debra Freeman, came about after Mr Martoma spoke to the "hedge-fund owner". No claims are made about what was discussed.
An SAC spokesman, when asked about the case and reports of the notice from the SEC, said: "Mr Cohen and SAC are confident that they have acted appropriately and will continue to co-operate with the government's inquiry."
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