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Where Does Today's Insider Trading News Leave SAC Capital?

Tuesday, 8 Feb 2011 | 4:05 PM ET

After a fresh round of insider trading arrests and news conferences, hedge fund giant SAC Capital is once again in the spotlight.

Today, two of SAC's former employees—Donald Longueuil and Noah Freeman—were criminally charged in the government's ever widening insider trading case.

In a statement released today , SAC confirmed that the two men were "employed at SAC for a short time" and were then dismissed "due to poor performance". The statement then goes on to say that "SAC is continuing to cooperate with the government’s investigation."

So what does the new information we learned today tell us about SAC Capital—specifically regarding where it may stand relative to the investigation?

Perhaps more to the point: If you were looking for evidence of potential case against SAC, what would you find?

To begin with the obvious, it seems reasonable to observe that SAC management would have been happier today if a former employee had not pleaded guilty to conspiracy to commit securities fraud and wire fraud, as Noah Freeman did.

But when you did deeper into the complaint, it's difficult to find anything that looks damning – or even ominous—in regard to SAC Capital.

Earlier today, I wrote that it was reasonable to extrapolate, based on existing news reports and the SEC complain, that Hedge Fund #7 was SAC Capital.

So, when you read through the SAC complaint searching for reference to 'Hedge Fund #7', what do you find?

What you find, in fact, is a scant three references.

The first two are located in the section titled 'Defendants', where 'Hedge Fund #7' is mentioned in the summary biographies of Freeman and Longueil.

The third reference to 'Hedge Fund #7' is far more interesting:

"At the time that Jiau was providing material non-public information concerning Marvell's first quarter performance in advance of the company's announcement of the those results, Freeman was leaving or had left Hedge Fund #5 and had not yet begun his next job at Hedge Fund #7. Although Freeman was not in a position to trade on behalf of Hedge Fund #5 or Hedge Fund #7, Freeman passed Jiau's material nonpublic information to his friend Langueil, a managing director at Hedge Fund #6. [Emphasis mine.]"

So based on the information released today—actually based on all evidence to date, since the SEC complaint is a cumulative summary—what allegation does the government appear to be making against 'Hedge Fund #7'?

The answer is that the government does not appear to be making any allegations about 'Hedge Fund #7' at this time.

Also, it's worth adding that Hedge Funds #2, #3, and #4 have their alleged criminal conduct referenced rather explicitly. (For example: "This was not the first time that the analyst at Hedge Fund #2 had profited from inside information…)

Of course, we cannot know what is to come—with regard to SAC Capital or the case as a whole.

There is no telling which direction this case may go after more evidence comes to light—and the cooperating witnesses begin to tell their stories.

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