Steven Cohen doesn’t have much to worry about when it comes to the latest link between the founder of hedge fund giant SAC Capital and insider trading.
The records of trades made to an account tagged with Cohen’s name showed up in a list of documents the government obtained as part of its case against one of two former SAC traders charged with insider trading. The story was broken by the Wall Street Journal today. You can read the court filing at the New York Times' DealBook blog.
The account is reportedly used by Cohen to trade on the best ideas of his portfolio managers. They send him their “high-conviction” ideas, he trades, and if the trades make money he cuts them in on the profits, according to a person familiar with the matter. It’s known as the Steven A. Cohen account or The Big Book. It has $3 billion under management.
The two former portfolio managers are Donald Longueuil and Noah Freeman. Each pleaded guilty to insider trading charges.
Cohen probably has nothing to worry about here. So far, there is no sign that either Longueuil or Freeman sent Cohen trading ideas based on illegal inside information.
But even if they did send Cohen trading ideas based on illegal tips—and even if Cohen then traded on them—there’s likely to be no legal problem for Cohen unless the government can prove he knew the ideas were based on illegal tips. Trading based on inside information is not illegal if the trader doesn’t know the tip was illegally obtained.
If anyone would be in trouble over these trades, it would be Longueuil and Freeman. If they passed on trading ideas based on inside information, expecting to get a share of the profits from trading in the Cohen account, they could face prosecution.
Without a doubt, Cohen would very much like to stop seeing SAC Capital in the same headlines as the phrase “insider trading.” But legally, he’s unlikely to face any trouble from the latest news.
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