An administrative proceeding filed against SAC Capital Advisors LP founder Steven A. Cohen by the Securities and Exchange Commission should be put on hold because prosecutions of his former employees aren’t fully resolved, the government told an agency judge.
The SEC filed its case against Cohen last year, alleging he failed to supervise former hedge fund managers Mathew Martoma and Michael Steinberg and ignored indications that they illegally traded stocks based on confidential information. Both men were convicted after separate federal trials in Manhattan.
The federal judge who presided over Steinberg’s case “acknowledged the possibility” that Steinberg’s conviction could be overturned after two other portfolio managers found guilty in a related case appealed their convictions in April. In a letter yesterday, Assistant U.S. Attorney Arlo Devlin-Brown asked Brenda P. Murray, the SEC’s chief administrative law judge, to delay the agency’s case while the criminal cases are pending.
SAC Capital last year reached a $1.8 billion settlement with the U.S., pleading guilty to making hundreds of millions of dollars in illegal profits and fostering a criminal culture at the firm. The hedge fund has since shut its doors to outside investors and changed its name to Point72 Asset Management LP. Cohen, who has denied wrongdoing, hasn’t been charged with a crime.
Steinberg, convicted after a federal trial in New York in December, was sentenced this month to 3 1/2 years in prison. Martoma, convicted in February of a carrying out a $276 million insider-trading scheme, the largest in history, is scheduled to be sentenced June 10.
Martoma has asked for leniency from the judge who will sentence him.
“Martoma was convicted of insider trading over the course of at most two weeks based on one piece of information from one tipper about one event,” Richard Strassberg, Martoma’s lawyer, said in a May 27 court filing. Strassberg said Martoma “is less culpable than other recent insider-trading defendants.”
The government’s probation department, which makes recommendations based on federal sentencing guidelines, recommended one of the most severe insider-trading prison terms in U.S. history, from 15 to 20 years.
Calling the recommendation “outrageous,” Strassberg cited cases he said were similar to Martoma’s in which defendants received as little as two years. The sentencing range, the lawyer said, should be five years to 6 1/2 years.
Prosecutors have yet to make their own recommendation to the judge.
Jonathan Gasthalter, a spokesman for Stamford, Connecticut-based Point72 Asset Management with Sard Verbinnen & Co., declined to comment on the request to postpone the SEC case.
The regulator is seeking to bar Cohen from overseeing investor funds.
Failure to supervise claims can only be brought administratively and are heard by an administrative judge within the SEC and not in a federal court as would civil insider-trading allegations.
Prosecutors have previously requested and obtained delays in the SEC action since the case was filed in July. Devlin-Brown asked for the delay to remain in place until July 26 or earlier if the appeals court issues a ruling in the related insider-trading case.
The SEC case is In the Matter of Steven A. Cohen, Administrative Proceeding No. 3-15382. The Martoma case is U.S. v. Martoma, 12-cr-00973, U.S. District Court, Southern District of New York (Manhattan).