Saturday, June 29, 2013

White Collar: Head of SAC Capital Advisors Invokes Fifth before Grand Jury

Steven A. Cohen head of the giant hedge fund SAC Capital Investors invoked his Fifth Amendment right against self incrimination when called to testify before a federal grand jury in the Southern District of New York.  The grand jury is investigating insider trading allegations at Cohen's hedge fund.  The United States has already charged an employee of the hedge fund, Matthew Martoma, with insider trading in transactions involving shares of drug companies Elan and Wyeth.  (See prior blog of June 5, 2013.)
The trading in the subject stocks began on July 21, 2008.  Thus, in approximately three weeks the five year statute of limitations will begin to run on the first of the trades.  The statute would not prevent the government from charging Cohen with trades made within the five year period of limitations or with a continuous conspiracy that began outside of the five year limitation period but extended into it. 
Among the options available to the government are charging Cohen with aiding and abetting Martoma's fraudulent trading or charging the company itself with insider trading.  The theory underlying a charge against SAC itself is that the criminal acts of an employee, such as Martoma,  benefited the company. 
Apart from the criminal investigation, SAC has settled two civil actions brought by the Securities and Exchange Commission relating to trading in Elan, Wyeth, and Dell.  As a result of these settlements, the hedge fund has agreed to pay $616 million.  The settlements took place in March of this year.
The SEC is still considering whether to bring a civil action directly against Cohen.  The Commission could bring insider trading fraud charges or the lesser charge of failing to adequately supervise hedge fund employees.  The five year statute of limitations applicable to the federal criminal authorities does not apply to any SEC action.
It is quite possible that the SEC could bring an action while the Justice Department refrains from doing so.  This is because the SEC must only meet the civil litigation standard of proving its case by a preponderance of the evidence while the Justice Department must meet the criminal standard of proof beyond a reasonable doubt.
For further information about the investigations of Cohen, please see the New York Times,

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