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Hedge Fund Manager Steven Cohen’s Case Delayed

Cohen VIA Minh Uong/The New York TimesNew York (HedgeCo.Net) – People from US prosecutor Preet Bharara’s office have asked for a extension on a stay that has been in place since August in the case against Steven Cohen, the NYT reports. “Prosecutors want the proceeding stayed pending the outcome a closely watched appeal of the convictions of two former hedge fund managers, which could lead to new trials not only for them but potentially others convicted of insider trading.”

The SEC’s Division of Enforcement alleges that Cohen received highly suspicious information that should have caused any reasonable hedge fund manager to investigate the basis for trades made by two portfolio managers who reported to him – Mathew Martoma and Michael Steinberg.  Cohen ignored the red flags and allowed Martoma and Steinberg to execute the trades.  Instead of scrutinizing their conduct, Cohen praised Steinberg for his role in the suspicious trading and rewarded Martoma with a $9 million bonus for his work.  Cohen’s hedge funds earned profits and avoided losses of more than $275 million as a result of the illegal trades.

“Hedge fund managers are responsible for exercising appropriate supervision over their employees to ensure that their firms comply with the securities laws,” said Andrew J. Ceresney, Co-Director of the SEC’s Division of Enforcement.  “After learning about red flags indicating potential insider trading by his employees, Steven Cohen allegedly failed to follow up to prevent violations of the law.  In addition to the more than $615 million his firm has already agreed to pay for the alleged insider trading, the Enforcement Division is seeking to bar Cohen from overseeing investor funds.”

Six SAC employees have already been criminally charged with insider trading, and two of them have pleaded guilty. A SAC affiliate has agreed to pay $615 million to settle SEC charges. FBI Assistant Director George Venizelos said: “SAC Capital and its management fostered a culture of permissiveness. SAC not only tolerated cheating, it encouraged it.”

Cohen himself has taken the 5th, declining to testify before a grand jury.

Alex Akesson
Editor for HedgeCo.net
alex@hedgeco.net
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