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Cohen Is Said to Remain Silent as SAC Managers Summoned

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Cohen Remains Silent as SAC Executives Called Before Grand Jury
Steven "Steve" Cohen, chairman and chief executive officer of SAC Captial Advisors LP. Photographer: Scott Eells/Bloomberg

July 2 (Bloomberg) -- Billionaire hedge-fund manager Steven A. Cohen declined to testify before a grand jury about allegations of insider trading at his SAC Capital Advisors LP, according to three people familiar with the matter.

Cohen, 57, made use of his Fifth Amendment right not to incriminate himself after being summoned, said the people, who asked not to be identified because the information is private. He was excused from appearing before the grand jury after informing prosecutors through his lawyers that he planned to use the right, said one of the people.

“I wouldn’t have recommended that he go in to testify given how this looks like the government is trying to build a case around Cohen, rather than investigate one,” said Thomas Gorman, a partner at law firm Dorsey & Whitney LLP in Washington. “It just seems that the government is reaching for a theory to support their beliefs.”

The $15 billion hedge-fund firm, based in Stamford, Connecticut, and its founder have moved to the center of a U.S. multi-year investigation of insider trading on Wall Street since former portfolio manager Mathew Martoma was charged in November in what prosecutors called the biggest insider-trading scheme in history. The investigation has hurt SAC’s business, with clients asking to pull billions of dollars from the fund last month.

Amid the redemptions, the firm’s 14-member investor-relations team is being cut by half, with seven employees leaving, according to two people briefed on the matter. The group handles the firm’s relationship with outside clients.

Client Redemptions

“We have reduced our staffing consistent with our present needs,” said Jonathan Gasthalter, a spokesman for SAC Capital at Sard Verbinnen & Co.

SAC, in a June 4 e-mail, told employees it received “significant” redemptions for the second quarter, though it had no plans to give up managing other peoples’ money. Cohen and employees currently account for about $9 billion of the firm’s assets.

SAC President Tom Conheeney said in the e-mail that the firm still has a stable capital base and some key investors said they may reconsider their redemption requests once they have greater clarity of legal issues surrounding the firm.

While SAC paid a record $602 million to settle a civil case related to Martoma’s trades, the government has shown no sign of ending its scrutiny of the firm. SAC in May told clients it will no longer cooperate unconditionally with the government.

Martoma’s Trades

Five SAC employees also received subpoenas in May to appear before a grand jury. Conheeney; Chief Operating Officer Solomon Kumin; Steve Kessler, head of compliance; Phillipp Villhauer, head trader; and portfolio manager Anthony Vaccarino were recently interviewed by prosecutors at their offices in lower Manhattan, said the people.

Former prosecutors said that in an effort to build a case, the U.S. may seek a one-day session with a defendant and his lawyer in which the government agrees to grant immunity from prosecution for the so-called proffer session.

During such sessions the defendant agrees to answer questions truthfully, and prosecutors promise not to use information provided for bringing criminal charges or introduce the statements into evidence. The government may use such statements only on cross-examination to undercut testimony if a defendant takes the stand.

Telling the truth is essential, and lying during such a session leaves an individual open to criminal prosecution, defense lawyers said.

‘Not a Shootout’

Subpoenaed to testify before a grand jury, a defense lawyer will ask if his client is a target, subject or witness, lawyers said. If an individual is going to invoke the Fifth Amendment, a lawyer will typically inform the government of that by letter or e-mail, the attorneys said.

“It’s not shootout at the O.K. Corral,” said Doug Burns, a former federal prosecutor in New York. “It’s all very civilized.”

Last year, the Securities and Exchange Commission deposed Cohen about trades made close to news that generated profits for his firm, people familiar with the matter said at the time.

The five-year statute of limitations covering Martoma’s 2008 trades, in which the hedge fund netted $276 million in profits and averted losses from alleged inside information concerning a drug trial, expires in late July.

Gasthalter declined to comment on whether Cohen had invoked his Fifth Amendment right, as did Jerika Richardson, a spokeswoman for U.S. Attorney Preet Bharara in Manhattan. Cohen hasn’t been accused of any wrongdoing and has said he acted appropriately. Martoma has pleaded not guilty and is scheduled for trial on Nov. 4.

SAC Compliance

If a “target” of a government investigation refuses to testify on Fifth Amendment grounds, the person don’t normally need to appear before a grand jury, according to government manual. A “target” is a person as to whom the prosecutor or the grand jury has substantial evidence linking him or her to a crime and who is considered to be is a putative defendant, according to the manual.

All the executives called before the grand jury are longtime SAC employees who would be in a position to know about compliance policies at the firm. Conheeney has worked at SAC since in 1999 and was made president in 2008, according to fund documents. Kessler and Kumin both joined in 2005, while Villhauer, who has worked at SAC since 2002, executed the trades at the center of Martoma’s case. Vaccarino is a portfolio manager who specializes in consumer companies.

The U.S. has linked at least nine current or former employees to allegations of insider trading while at the hedge fund.

To contact the reporters on this story: Katherine Burton in New York at; Saijel Kishan in New York at; Patricia Hurtado in New York at

To contact the editors responsible for this story: Christian Baumgaertel at; Michael Hytha at

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