Following the big Galleon Group insider trading bust — albeit a decade late — the private equity world and those who invest in it are fearful.
Crack investigative reporters Matthew Goldstein and Svea Herbst-Bayliss of Reuters dive into the issue and find a potential answer: SAC.
Reuters: Of course, no one knows for sure. But court documents and interviews with many industry sources familiar with the case show that agent Kang may be focusing in on Steven A. Cohen and his $12.9 billion SAC Capital Advisors, L.P.
A top Galleon investigator, FBI agent B.J. Kang, got a lead to SAC from the case. A cooperating witness, Richard Choo-Beng Lee, is expected to provide prosecutors with alleged evidence of insider trading he may have committed between 1999 and 2009 — a period that includes five-years at SAC.
There could be others:
But Kang’s toughest challenge may lie ahead of him. Lawyers, hedge fund traders and others with knowledge of the ongoing investigation say the agent and federal prosecutors are now focused on a number of former SAC employees whose names have cropped up during the Galleon phase of the inquiry and who also may have engaged in insider trading.
Recently unsealed court documents (below, via Reuters) regarding former SAC analyst Andrew Tong have also brought suspicion to the hugely successful hedge fund.
SAC and Tong settled after he filed a salcious suit including alleging forced oral sex with his male supervisor, Ping Jiang. Tong also alleged Jiang ordered him to take female hormones to turn him into “the ideal analyst/trader,” combining both male and female characteristics.
But the real story, as the Reuters piece points out, is in Tong’s allegations of manipulative trading at SAC:
In early 2006, according to the court papers, Jiang directed Tong and at least two other SAC employees to take part in a manipulative trading scheme involving shares of China Yuchai International Ltd., a Chinese-based diesel engine manufacturing company. The court papers suggest the hedge fund took a short position in shares of China Yuchai; betting the stock would fall in price. The papers say Tong and others then began “manufacturing false negative analytical reports about CYD to facilitate this manipulation.” The strategy didn’t work and SAC took a $3 million hit, which Tong claims Jiang ultimately blamed on him.
Tong says Jiang, then a top SAC trader, told him: “Steven Cohen only wants us to make money, he doesn’t care or want to know our secrets to make money.”