The Securities and Exchange Commission says that billionaire Steven Cohen will not be allowed to supervise funds that oversee outside money or take on a supervisory position at any brokerage firm or investment adviser firm until 2018. The temporary bar is to resolve charges accusing him of not properly supervise Mathew Martoma. The ex-portfolio manager committed insider trading while at CR Intrinsic Investors. That firm is a subsidiary of S.A.C Capital Advisors LLC, which Cohen founded.
Cohen had been barred for life from the securities industry over said violations, although he was never charged in criminal court. However, because of an appeals court ruling in another case which impacted his case, hence the revised settlement. This latest deal will have caused Cohen to be barred from managing outside money for four years. He’s already been restricted for two of those four years.
The regulator says that before Cohen will be allowed to deal with external funds again an independent counsel will have to make sure that legally adequate procedures, policies, and supervisory mechanisms are implemented so that possible incidents of insider trading in the future are detected and stopped.
The SEC’s order also said that Cohen had ignored warning signs that should have compelled him to act immediately to find out whether or not Martoma was doing something illicit. Instead, he allowed him to make trades while making similar trades in accounts that he controlled. As a result of the insider trading, Cohen’s hedge funds made money while avoiding losses of about $275M.
The SEC wants the provisions of this settlement to factor in the possibility that it might have to file a new case against Cohen, an employee he supervised, or a related entity in the future. Should he take on supervisory role with a registered dealer, broker, or investment adviser after the bar has been lifted, that entity would also have to hire an independent consultant through the end of 2019. By settling, Cohen is not denying or admitting to the SEC’s findings that are accusing him of not reasonably supervising Martoma.
More Hedge Fund Fraud News
Two ex-fund managers were sentenced to 45 months behind bars because of their $500M scam. Ex-MIT Professor Gabriel Bitran and his son Marco Bitran had pled guilty to criminal charges in 2014.
They raised funds from wealthy investors through GMB Capital Management. The father and son were supposed to invest the money in a unique trading model but ended up putting the cash in funds linked to Ponzi scam masterminds Bernard Madoff and Tom Petters. When the economy tanked in 2008, the Bitrans withdrew about $12M of their money but not the funds of investors, who lost over $140M.
Also, the SEC has barred three hedge fund executives from the securities industry for life over a multimillion-dollar fraud that occurred several years ago. David Bryson, Richard Pereria, and Bart Gutekunst have already been convicted of criminal charges for conspiracy to commit wire fraud.
Through their New Stream Capital and affiliated entities, they collected over $750M. During the 2008 financial crisis, they made certain fund-related changes without notifying investors. The reason for the changes was to try stopping their largest investor from taking out $300M. Many investors were hurt and the funds eventually failed.
SAC’s Cohen Poised for Hedge Fund Return Under Deal With SEC, Bloomberg, January 8, 2016
MIT Professor And Son Get 45 Months In Prison For Hedge Fund Fraud, Financial Advisor, December 17, 2016
Former Connecticut Hedge Fund Executives Settle SEC Action, SEC, December 28, 2015