Steven A Cohen has been prohibited from supervising hedge funds that manage outside money for two years after reaching a settlement with the SEC over charges that he failed to supervise a portfolio manager who engaged in insider trading while employed at his firm.
The ban imposed by the ’neither admit nor deny settlement’, which means Cohen did not have to admit to any of the SEC's substantive allegations to end the case, runs until 31 December, 2017. Until that time, Cohen will continue to be able to run his large Family Office, Point 72 Asset Management, although the firm will be subject to SEC examinations and must retain an independent consultant to conduct periodic reviews of its activities to ensure compliance with securities laws.
The SEC's settlement order alleges that Cohen failed to reasonably supervise Matthew Martoma, who engaged in insider trading in 2008 while employed at CR Intrinsic Investors, an investment advisory firm that was a wholly-owned subsidiary of SAC Capital Advisors LLC, an entity founded and controlled by Cohen, which resulted in Cohen's firm engaging in insider trading. Further, it alleges that Cohen ignored several red flags that Martoma had access to inside information and also encouraged Martoma to talk to a doctor about nonpublic drug trial results to inform trading decisions. Based on these trades, Cohen’s hedge funds earned profits and avoided losses of approximately USD275 million.
“Before Cohen can handle outside money again, an independent consultant will ensure there are legally sufficient policies, procedures, and supervision mechanisms in place to detect and deter any insider trading,” says Andrew J Ceresney, Director of the SEC’s Enforcement Division. “The strong combination of a two-year supervisory bar and additional oversight requirements achieves significant and immediate investor protection and deterrence, while ensuring that the activities of his funds are closely monitored going forward.”
Under the terms of the settlement, Cohen is prohibited from serving in a supervisory role at any broker, dealer, or investment adviser until 2018, must retain an independent consultant and adopt consultant recommendations, and must submit to on-site SEC examinations of his registered or unregistered firms.
The SEC order also includes provisions to extend the length of the settlement terms in the event the Commission brings a new action against Cohen, a related entity, or an employee supervised by him. The settlement terms also provide that if Cohen becomes associated in a supervisory capacity with an entity that is a registered broker, dealer, or investment adviser in 2018 or 2019, that entity will retain an independent consultant through Dec. 31, 2019.
Previously in November 2012, the SEC charged CR Intrinsic and Martoma with insider trading. In March 2013, CR Intrinsic agreed to pay more than USD600 million in order to settle the SEC charges. In July 2013, Cohen’s entities, including SAC Capital Advisors and CR Intrinsic, paid an additional USD1.2 billion to resolve criminal charges brought by the US Attorney’s Office for the Southern District of New York
