The Securities and Exchange Commission sued billionaire hedge fund manager Steven Cohen for failing to supervise two portfolio managers at Stamford-based SAC Capital. The SEC is also seeking to bar Cohen from overseeing investor funds.
What’s interesting is in the complaint against him the SEC published some instant messages between analysts and Cohen discussing whether or not former portfolio manager Mathew Martoma had information he shouldn’t have been able to get. [h/t @matt_levine]
From the complaint [.PDF]: (emphasis ours)
The Analysts exchanged a number of emails and instant messages with Cohen about whether Martoma’s advice on Elan and Wyeth was sound. On March 28, 2008, one of the Analysts told Cohen in an instant message that he did not think anyone could yet know the Phase II Trial data, because the trial was not over yet. Cohen responded by saying he would follow Martoma’s and Hedge Fund Manager A’s advice, because “they are closer to it than you.” Later in the same message, the Analyst asked Cohen: “[I] don’t know if [Hedge Fund Manager A] or mat [Martoma] will answer, but do you think they know something or do they have a very strong feeling.” Cohen replied: “[T]ough one . . . i think mat [Martoma] is the closest to it.” The Analyst responded: “[T]he question that I would ask is if it[‘]s possible to know the data yet – i could be wrong, but i don’t think it is yet.”
A few days later, on April 6, 2008, Cohen exchanged instant messages with the other Analyst about the Drug. Cohen remarked that it “seems like mat [Martoma] has a lot of good relationships in this arena.”
In the insider trading case against former Martoma, who worked at SAC’s CR Intrinsic, the complaints allege that the insider trading scheme involved information in pharmaceutical companies, Elan Corporation and Wyeth, between the summer 2006 and mid-July 2008.
The Justice Department’s complaint alleges that Martoma got access to negative non-public drug trial information, which caused the hedge fund to dump positions in the stocks. The hedge fund then shorted those stocks betting that the price would decrease, the complaint said.
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