U.S. authorities are investigating Steven A. Cohen's SAC Capital Advisors hedge fund for possible insider trading in the shares of the popular diet company Weight Watchers International, according to people familiar with the matter.
The investigation focuses on trading in Weight Watchers shares in the first half of 2011, when SAC Capital had taken a sizeable position in the stock, and potentially could implicate the billionaire hedge fund manager, the sources said on Friday.
Regulatory filings show that Cohen's $14 billion fund briefly held 2.1 million shares in Weight Watchers during the period under scrutiny by authorities - at which time the diet company's stock price roughly doubled.
The inquiry is in its early stages and it is not clear whether anything improper was done either by SAC Capital or Cohen himself, said the people familiar with the matter, who requested anonymity. The trading in Weight Watchers would be permissible as long as it was based on fundamental research or derived from individuals who did not have access to non-public corporate information.
An SAC Capital spokesman said the firm was not aware of any investigation involving Weight Watchers. A spokeswoman for Manhattan U.S. Attorney Preet Bharara declined to comment. A spokesperson for Weight Watchers did not immediately respond to a request for comment.
The new line of pursuit ratchets up pressure on Cohen, 56, one of the hedge fund industry's most successful and best-known managers. The spotlight the probe asts on SAC Capital and Cohen could further rattle the hedge fund's investors, who account for roughly 40 percent of the firm's capital.
Two weeks ago, U.S. prosecutors charged a former SAC Capital employee, Mathew Martoma, with using inside information to generate profits and avoid losses totaling $276 million in shares of two drug stocks. The U.S. Securities and Exchange Commission also has formally warned SAC Capital that the firm could face civil charges.
A number of SAC's investors have said they have not made a decision on whether to redeem money from the firm. Investors have until mid-February to put in a redemption notice.
Martoma has not entered a plea but his lawyer has said he expects to be exonerated. SAC has declined to comment beyond saying, "Mr. Cohen and SAC are confident that they have acted appropriately."
Martoma is the seventh former SAC Capital employee to be charged or implicated by federal authorities for insider trading. The criminal complaint against Martoma, who last worked for CR Intrinsic, an affiliated fund of SAC Capital in 2010, for the first time alleges that Cohen personally approved the decision to sell-out of a big stake the hedge fund had in shares of Elan Corp Wyeth, now part of Pfizer Inc.
Separately, U.S. authorities are also investigating SAC for suspicious trading in shares of biotech company InterMune in 2010, according to one of the people familiar with the probes.
Federal authorities have not charged Cohen, whose net worth is estimated by Forbes at about $8.8 billion as of September this year. The hedge fund manager has told his investors and 900 employees that neither he nor the firm has done anything improper in response to Martoma's arrest.
It's not clear what has prompted federal authorities to look into Stamford, Conn.-based SAC Capital's trading in shares of Weight Watchers. One of the people familiar with the investigation said authorities are looking at trading that both booked hefty profits and avoided losses for SAC Capital.