The US Securities and Exchange Commission (SEC) has filed civil charges against Steven Cohen, head of the hedge fund SAC Capital, for failing to supervise two portfolio managers and prevent insider trading.
In the complaint, the SEC alleges that Cohen received highly suspicious information that should have caused any reasonable hedge fund manager to investigate the basis for trades made by two portfolio managers who reported to him, Mathew Martoma and Michael Steinberg.
The SEC also alleges that Cohen ignored the red flags and allowed Martoma and Steinberg to execute the trades. Cohen praised Steinberg for his role in the suspicious trading and rewarded Martoma with a US$9 million bonus for his work. Cohen’s hedge funds earned profits and avoided losses of more than US$275 million as a result of the illegal trades.
Andrew Ceresney, co-director of the SEC’s division of enforcement, said: "Hedge fund managers are responsible for exercising appropriate supervision over their employees to ensure that their firms comply with the securities laws.
"After learning about red flags indicating potential insider trading by his employees, Steven Cohen allegedly failed to follow up to prevent violations of the law. In addition to the more than US$615 million his firm has already agreed to pay for the alleged insider trading, the enforcement division is seeking to bar Cohen from overseeing investor funds," added Ceresney.