Federal prosecutors came down hard on billionaire hedge fund manager Steven A. Cohen on Thursday, unveiling criminal fraud charges against his SAC Capital Advisors LP that could end the career of one of Wall Street’s most successful investors.
Reuters reported that Cohen stands accused of presiding over a broken business where employees were encouraged to push the envelope to get that extra investing edge, with little regard for whether they were acting honestly and within the law.
The result was “insider trading that was substantial, pervasive and on a scale without known precedent in the hedge fund industry,” the government said.
Thursday’s indictment, and a related civil case seeking an asset freeze and money laundering penalties, imperils the future of SAC, a roughly $15bn hedge fund that has posted some of its industry’s best returns and established Cohen as one of the best traders of his generation.
While not personally charged criminally, Cohen joins Drexel Burnham Lambert chief Michael Milken and Galleon Group hedge fund founder Raj Rajaratnam among prominent Wall Street executives associated with insider-trading.
The rare move by the US Department of Justice to indict a powerful financial firm could end Cohen’s career managing outside money. It reflects what prosecutors and the FBI see as pervasive wrongdoing at SAC that hurts investors generally.
“SAC not only tolerated cheating, it encouraged it,” FBI assistant director George Venizelos said in a statement.
The charges also cap a seven-year investigation of SAC, amid a broader crackdown on insider-trading resulting in more than 70 convictions and guilty pleas.
The case is as much a forceful reproof of an era of free-wheeling trading by hedge funds, as it is a condemnation of SAC’s culture as an alleged breeding ground for traders and analysts angling for that extra edge by trafficking in illegal tips about corporate earnings and buyouts.
SAC in a statement said it will continue to operate as it works through the criminal case.
Launched in 1992 with just $25m, SAC became the most successful hedge fund to rely on the so-called mosaic theory of investing, which builds investment theses on stocks by gathering information from multiple sources.