BlueCrest Capital Management fired one of its money managers last year after asserting he improperly divulged information about his stock trading to an employee at Steven Cohen’s investment firm, according to three people familiar with the circumstances.
Nicholas O’Grady, 36, was dismissed six months into a stint at the hedge fund after sharing information with Point72 Asset Management’s David J. Blanc, 38, in instant messages that BlueCrest deemed inappropriate, the people said. O’Grady, who says he was fired without cause, sued BlueCrest last month over an unpaid bonus. He found a new job at a firm that said it conducted an extensive review of his termination and found no reasons for concern.
The decision by BlueCrest, which is run by Michael Platt and oversees $14 billion, shows the increasingly low tolerance some hedge funds have for traders who share information, especially after a series of insider-trading convictions and market-rigging allegations that shook Wall Street in recent years. SAC Capital Advisors, the predecessor to Point72, last year paid a record fine to settle U.S. charges of securities fraud and stopped managing money for outside clients.
“Even if no laws were broken, companies are becoming even more sensitive to the appearance of a conflict of interest following the recent scandals,” said Mitchel Kraskin, chief executive officer of Compliance Science, a New York-based firm that advises financial companies on compliance. “Conduct that may have been okay in the past is being closely scrutinized and firms don’t want to take any risks.”
O’Grady, who previously worked at SAC, was fired from BlueCrest on June 4, according to his complaint, filed Feb. 17 in Manhattan federal court. He didn’t return phone messages seeking comment. His lawyer, Jonathan Sack, said in an e-mail that O’Grady generated more than $9.2 million in profit for BlueCrest during his tenure at the firm.
“Nick O’Grady is a senior level executive and extremely well-respected manager and investor with an impressive track record in the hedge-fund industry for over ten successful years,”Sack said. “Throughout his tenure at BlueCrest, O’Grady was a consistently instrumental employee, whose performance at BlueCrest can be characterized as exemplary.”
Ed Orlebar, a spokesman for BlueCrest, which is based in the Channel Island of Jersey, declined to comment.
O’Grady, who was based in New York, said his fund was the best-performing at BlueCrest by June, generating profits of almost 7 percent in less than six months and that he won praise from management, according to his lawsuit. A hearing in the case, in which O’Grady seeks $1.3 million from the firm, is scheduled for April 17.
The exchange between O’Grady and Blanc on instant messages was caught by BlueCrest’s compliance group, said one of the people, who like the others asked not to be named because they weren’t authorized to speak publicly. After O’Grady left BlueCrest, an executive at the firm met with employees in New York individually and told them that while O’Grady had generated profits, he was let go because of inappropriate conversations he had on an instant message system, the person said.
After O’Grady was fired from BlueCrest, Point72 barred some analysts and money managers from using instant messaging to communicate with outsiders, according to a June 9 memo. The move “will reduce the highly informal communications inherent with instant messaging that can lead to confusion and inaccuracy, reflecting our continuing commitment to pursue all reasonable steps to prevent inappropriate information from entering the firm,” Chief Surveillance Officer Vincent Tortorella said in the memo, viewed by Bloomberg News.
The ban at Point72 wasn’t enacted as a result of the communications between O’Grady and Blanc, a person with knowledge of matter said. The firm has said it’s beefed up compliance measures in the wake of SAC’s $1.8 billion settlement with the U.S.
O’Grady joined BlueCrest from SAC in December 2013, shortly after the hedge fund firm pleaded guilty to securities fraud. He graduated from Bowdoin College in Maine in 2000 and worked at companies including Bank of America Corp. and Highbridge Capital Management before joining SAC in 2012.
Like O’Grady, Blanc focused on energy stocks. A 2000 graduate of Yale University, he started working for Cohen’s firm in 2001, according to his LinkedIn profile. He was once the head trader of an SAC unit called CR Intrinsic, according to the website, before becoming a research trader on SAC’s Cohen account. Last year, when O’Grady worked at BlueCrest, Blanc was working to become a money manager at Cohen’s firm. He’s now an analyst at Stamford, Connecticut-based Point72.
Blanc didn’t respond to e-mails and phone messages to his office.
“After reviewing every IM exchange between Mr. O’Grady and Mr. Blanc, we know Mr. Blanc did not tell Mr. O’Grady of trades he intended to execute before he put on the positions,” Jonathan Gasthalter, a spokesman for Point72 at Sard Verbinnen & Co., said in an e-mailed statement, referring to instant messages. “There is nothing improper about communicating about trading positions after they have occurred.”
Hudson Bay Capital Management, the New York hedge fund which O’Grady joined in September as money manager, said it’s pleased to have a person of his experience and talent at the firm.
“We were aware of his termination prior to hiring him,” Scott Black, Hudson Bay’s general counsel and chief compliance officer, said in a statement. “We spoke with numerous third parties, including individuals and his former employer. We are satisfied with his explanation and the facts surrounding his departure from BlueCrest.”
BlueCrest was among the hedge-fund firms that were open to considering applicants from SAC as it tried to build out its equities business in the U.S. The firm has faced investor withdrawals after lackluster returns in the past two years from what was its biggest fund. Its computer-driven trading unit was turned into a separate firm in January, helping cut BlueCrest’s assets by more than half from a peak of $37 billion in 2013.
In his complaint, O’Grady said he discussed joining BlueCrest after he recognized that SAC’s legal problems could adversely affect his “professional upward trajectory.” SAC told O’Grady in October 2013 that he was “free to leave,” according to the complaint.
A letter from BlueCrest offering O’Grady employment, which is dated Oct. 31, 2013 and signed by him, barred him from disclosing confidential business information, including investments, trading philosophies and strategies, according to a copy that he included in his complaint.