The Securities and Exchange Commission said Friday that billionaire hedge fund manager Steven A. Cohen will be prohibited from supervising funds that manage outside money until 2018, a sanction to settle charges that Cohen failed to supervise a former portfolio manager who engaged in insider trading while working at his firm, SAC Capital Advisors.
Accepting the two-year ban, Cohen is neither admitting nor denying the SEC’s finding that he “failed reasonably to supervise” Mathew Martoma, the SEC said.
The SEC said it will continue to examine Cohen’s firms, which will be required to conduct periodic reviews by an independent consultant to ensure compliance with securities laws. Cohen also will not be allowed to supervise funds at any other brokers or advisory firms. The SEC may extend the length of the settlement terms if it brings “a new action” against Cohen or a related entity, it said.
Cohen began clashing with the SEC in 2013 when the agency filed a civil administrative proceeding that accused him of failing to properly supervise two lieutenants who were separately accused of insider trading at his firm.
The two traders, Michael Steinberg and Mathew Martoma, were later convicted on insider-trading charges. But federal prosecutors in New York ultimately dropped the case against Steinberg after a federal appeals court ruling that required a higher level of proof to support insider-trading convictions. Martoma is awaiting a decision on an appeal of his conviction.
A federal judge last year approved a record $1.8 billion insider-trading settlement with SAC Capital. And Cohen renamed the firm to Point72 Asset Management, a family office that handles personal trading and investments for Cohen and some of his employees.
“The strong combination of a two-year supervisory bar and additional oversight requirements achieves significant and immediate investor protection and deterrence, while ensuring that the activities of his funds are closely monitored going forward,” said Andrew J. Ceresney, Director of the SEC’s Enforcement Division, in a statement.
While Martoma worked for CR Intrinsic Investors, a subsidiary of SAC Capital, Cohen ignored “red flags” regarding Martoma’s trading activities in 2008 and placed “similar trades in accounts that Cohen controlled,” the SEC said.
Cohen also encouraged Martoma to talk to a doctor about nonpublic drug trial results prior to trading, ultimately resulting in trades that netted about $275 million, the SEC said.