The Securities and Exchange Commission leveled its most direct shot against billionaire hedge-fund manager Steven A. Cohen Friday by filing civil charges that accuse him of failing to prevent insider trading.
The SEC alleged that Cohen, who founded and runs SAC Capital Advisors, failed to prevent two of his portfolio managers from illegally reaping profits and avoiding losses of more than $275 million. Both managers provided information to Cohen that suggested they had access to inside information, the SEC said. But rather than raise any red flags, Cohen praised one of the managers and rewarded the other with a $9 million bonus, the SEC said.
Cohen, 57, a Great Neck native who attended Great Neck North High School, faces possible fines and could be barred from managing investor funds.
His Stamford, Conn.-based firm, which once managed more than $15 billion in assets, is at the center of one of the biggest insider-trading fraud cases in history. Four employees have already been criminally charged with insider trading -- two of whom have pleaded guilty. And an SAC affiliate has agreed to pay $615 million to settle SEC charges of insider trading.
A spokesman for SAC Capital said the allegations have "no merit" and Cohen "will fight this charge vigorously."
"Steve Cohen acted appropriately at all times," spokesman Jonathan Gasthalter said in a statement.
Legal experts said the SEC's action against Cohen Friday suggests the government may not have enough evidence to charge him with insider trading. And rather than seek higher penalties in a federal lawsuit, the SEC chose to bring the case against Cohen before an administrative law judge at the regulatory agency, where the legal burden of proof is lower.
"They've opted for the home court advantage," said John Coffee, a securities law professor at Columbia University. Coffee said it is significant that the SEC did not charge Cohen with insider trading. That suggests none of his subordinates "flipped" and told investigators that they provided Cohen with information, he said.
The SEC said that Cohen received "highly suspicious information that should have caused any reasonable hedge fund manager . . . to take prompt action to determine whether employees under his supervision were engaged in unlawful conduct and to prevent violations of the federal securities laws."
Cohen, who now lives in Greenwich, Conn., is among the handful of upper-tier hedge fund managers who pull in about $1 billion a year in compensation.
In 2010, the former Schneider Children's Hospital in New Hyde Park was renamed the Steven and Alexandra Cohen Children's Medical Center of New York for Cohen and his wife, whose family foundation gave $50 million to the hospital.