U.S. Senator Elizabeth Warren chastised the Securities and Exchange Commission for not barring billionaire Steven Cohen from starting a new hedge fund just months after the regulator scolded him for not properly overseeing an ex-employee convicted of securities fraud.
In 2013, Cohen’s SAC Capital consented to pay $1.8 million and pleaded guilty to fraud charges accusing the hedge fund of allowing insider trading to take place. It wasn’t until January of this year, however, that the SEC told Cohen that he was barred from managing the money of other people until 2018. Now, however, he is already involved in efforts to start Stamford Harbor Capital, a new hedge fund, of which he owns 25%.
Criticizing the SEC in a letter to its chairperson, Mary Jo White, Senator Warren said that Cohen’s application to start the new hedge fund, which the Commission approved, is just another example of the regulator’s enforcement actions failing to properly punish parties that are guilty, not protecting investors, and failing to impede future wrongdoing. It was just this January that Warren said that she believed that U.S. companies manage to commit crimes in part because of poor enforcement. She pointed to the SEC as an agency that often does not succeed in using the full scope of its enforcement powers.
In its case against Cohen, the SEC accused him of not properly supervising Mathew Martoma, who was convicted in of insider trading that allowed SAC to make gains and avoid losses of $276M. (Martoma is appealing his conviction.) While Cohen did not admit to wrongdoing when settling the SEC case, he did retain an independent consultant to ensure legal compliance.
The SEC has pointed out that it was the only law enforcement agency to file charges against Cohen over the insider trading allegations. Also, as part of his settlement with the Commission, the regulator will be closely watching the hedge fund billionaire’s trading activities.
Since 2013, Cohen has concentrated on managing his $10B fortune through Point72Asset Management LLP. He maintains that he will not be managing anyone else’s money until after that bar is lifted on January 1, 2018. Stamford Harbor Capital, LLC, however, purportedly will be allowed to seek outside money although there is no confirmation that is what it will do. Cohen, who is an owner, reportedly won’t be taking on a supervisory role, at least for now. Stamford Harbor Capital is based across the street from Point72.
In other insider trading-related hedge fund news, a NY analyst has been charged with insider trading. John Afriyie, who Reuters said may have worked for the hedge fund MSD Capital, allegedly traded in options in ADT stock because of material nonpublic information to which he was privy. Afriyie allegedly made $1.5M in ill-gotten gains.
It was in January that Apollo Investment Management, a private equity firm, came to MSD to talk about debt financing to acquire ADT Corp., a security company. MSD signed a nondisclosure deal with Apollo and was given access to an electronic data room about the deal.
Prosecutors believe that Afriyie was able to access this information through his employer’s server. He then purchased 2,279 ADT call options via 28 transactions in January and February 2016. The shares, which he bought through his mom’s brokerage account, cost him $24K.
Four days after his last share purchase, ADT’s stock rose and Afriyie made $1.5M. If convicted, Afriyie could spend up to 20 years behind bars. He faces a maximum payment penalty of $5M.
Senator Warren Questions SEC Over SAC Capital Decisions, ValueWalk, April 21, 2016
Steven A. Cohen Has A New Firm That Could One Day Manage Outside Money, Barrons.com, April 15, 2016
28-year-old hedge fund analyst accused of insider trading using his mom’s brokerage account, BusinessInsider, April 14, 2016