One goal of the government’s huge investigation into institutional insider trading appears to be to nail SAC Capital, the giant, wildly successful hedge fund run by Steve Cohen.
The FBI accosted an independent research analyst on the porch of his house at the end of October and threatened to arrest him if he didn’t wear a wire and try to trap a trader at SAC.
The analyst, John Kinnucan, held his ground, refusing to help. He then sent an email to all his clients, which included SAC, Jennison, Wellington, MFS, Citadel, and Maverick, explaining what had happened:
“Today two fresh faced eager beavers from the FBI showed up unannounced (obviously) on my doorstep thoroughly convinced that my clients have been trading on copious inside information,” the email said. “(They obviously have been recording my cell phone conversations for quite some time, with what motivation I have no idea.) We obviously beg to differ, so have therefore declined the young gentleman’s gracious offer to wear a wire and therefore ensnare you in their devious web.”
Like a handful of other institutions, SAC has long has amazing information about the companies whose stocks it trades, and this information has helped it coin money for better than a decade.
The government’s new investigation appears to be targeting this superior information. In so doing, it may “ensnare” many of Wall Street’s most successful institutions, including those above and Goldman Sachs. Based on the information we have so far, which was first reported by the Wall Street Journal, it could have a huge impact on the way top institutional investors gather and use information.
The investigation of another hedge fund, Galleon, has already brought down one of Wall Street’s most famous investors (Raj Rajaratnam, who is fighting the charges). The Galleon investigation has resulted in guilty pleas from 14 people, at least one of whom was “flipped” by one of the FBI agents who visited John Kinnucan in October.
The Wall Street Journal’s Susan Pulliam has more details about the night the FBI tried to flip Kinnucan.