Four senior executives at Steven Cohen’s SAC Capital Advisors LP received subpoenas as part of the U.S. multiyear probe into insider trading at the hedge fund firm, a person with knowledge of the matter said.
Subpoenas were sent to Tom Conheeney, president of SAC; Steve Kessler, head of compliance; and Phillipp Villhauer, head trader, said the person, who asked not to be named because the information is private. A fourth executive, Chief Operating Officer Solomon Kumin, also received a subpoena, the person said later.
A spokesman for the Stamford, Connecticut-based firm declined to comment yesterday on the subpoenas. Ellen Davis, a spokeswoman for U.S. Attorney Preet Bharara in Manhattan, also declined to comment, as did Adrienne Senatore, a spokeswoman for the Federal Bureau of Investigation’s New York office.
Cohen, SAC’s billionaire founder, was sent a subpoena last week to appear before a federal grand jury, a person with knowledge of the matter said earlier this week. After Cohen was summoned, SAC Capital told clients in a May 17 letter that it was no longer cooperating unconditionally with the government and it would no longer be updating clients on the matter. The firm expects “substantially more clarity” in coming months, according to the letter, portions of which were provided to Bloomberg News.
The Wall Street Journal reported the executive subpoenas earlier yesterday. Conheeney joined SAC in 1999 and was made president in 2008, while Kessler started in 2005, according to fund documents.
$276 Million Benefit
Villhauer helped SAC make or avoid losses of $276 million on trades that led to the arrest of former portfolio manager Mathew Martoma for alleged insider trading, two people familiar with the matter said in November. Martoma has denied wrongdoing.
The U.S. has already linked at least nine current or former employees to allegations of insider trading while at SAC Capital.
The subpoenas appear to show the government is putting renewed pressure on Cohen and hasn’t given up on attempting to collect information about his trading from top executives at the fund, said Anthony Sabino, a law professor at the Tobin School of Business at St. John’s University in New York.
“This collection of SAC people subpoenaed, especially the head of compliance, would have to be brought in if the government is doing their job to know what happened on these trades,” Sabino said in a phone interview. “Cohen has got to be fretting as to who are his friends and enemies.”
Cohen has discussed with the U.S. an agreement under which SAC would admit wrongdoing without being prosecuted unless it broke the law again, said a person familiar with his thinking who asked not to be named because the talks were private. As part of the deal, known as a deferred prosecution agreement, Cohen would close his firm to outside investors and make it a family office that manages his personal fortune. SAC Capital probably would also pay a fine.
“The government is squeezing Steve Cohen, they’re cutting off all of his avenues of escape,” Sabino said of the new subpoenas. “It appears to be a big show of force to Cohen to tell him in no uncertain terms, ‘We’ve got you in a corner, we’re now dotting our Is and crossing our Ts, and if you want a deferred prosecution agreement, well we know more and this is our deal.’”
Martoma was indicted in December in what prosecutors called a record-setting insider-trading scheme that netted as much as $276 million in illicit profits for the hedge fund firm. No trial date has been set for Martoma, who has pleaded not guilty to the charges.
In March, Michael Steinberg, a fund manager who works at an SAC unit was indicted by Bharara’s office, accused of earning more than $1.4 million based on illicit tips provided by his former analyst, Jon Horvath. Horvath pleaded guilty to insider-trading charges and is cooperating with the U.S. He will testify for the government against Steinberg, prosecutors said.
Steinberg, 41, who has pleaded not guilty, worked at SAC’s Sigma Capital Management unit and is the most senior SAC official to be charged in the government’s probe of insider trading at the $15 billion firm.
On March 15, SAC agreed to pay a record $616 million to settle U.S. regulatory claims that two of its units, including one involving Martoma and the second involving Horvath, engaged in insider trading.
SAC and its affiliates settled the Securities and Exchange Commission claims without admitting or denying wrongdoing. SAC’s CR Intrinsic Investors LLC unit agreed to pay almost $602 million and Sigma Capital agreed to forfeit about $14 million, the SEC said. They settled for a penalty about equal to the disgorgement amount.
Settlement of the civil allegations against the units doesn’t preclude the SEC from pursuing Cohen himself in the future, George Canellos, the agency’s acting enforcement director, said the day the accord was announced.
Four current or former SAC employees, including Horvath, have pleaded guilty to criminal insider-trading charges, including Noah Freeman, Donald Longueuil and Wesley Wang.
The Steinberg case is U.S. v. Steinberg, 12-00121, and the Martoma case is U.S. v. Martoma, 12-cr-00973, U.S. District Court, Southern District of New York (Manhattan).