DealBook reported last night that SAC Capital is under investigation by the Securities and Exchange Commission for possible insider trading in health-care stocks.
So how many investigations into SAC Capital are there right now?
1. We've got U.S. Senator Charles Grassley investigating 20 instances where Finra reported suspicious trades by SAC to the SEC.
2. There's an SEC investigation into SAC's use of expert networks.
3. The SEC is looking into whether SAC used inside information about the 2007 takeover of MedImmune, a biotechnology company.
4. Federal prosecutors are "examining trades in an account overseen" by Steve Cohen, SAC Capital's founder
That's four reported investigations.
This raises an important question: Do institutional investors have an obligation to pull money from a hedge fund subject to this much government scrutiny? Neither SAC nor Cohen have been accused of any wrongdoing. (And, personally, I strong suspect that SAC has become the focus of investigations simply because it is so successful.)
But investing with Cohen now carries the additional risk that he may find himself subject to civil or criminal charges for violating securities laws. This has to be a huge distraction for Cohen and his managers. At some point, institutional investors who owe fiduciary duties to their clients must wonder whether this additional risk is worth taking.
On the other hand, SAC Capital has famously been hard to invest with. If institutional investors start pulling their money out of SAC, it might create opportunities for outsiders to swim in the shark tank with Steve Cohen.
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