Senator Grassley Probes SEC’s SAC Investigation

Senator Chuck Grassley
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Senator Chuck Grassley

Senator Chuck Grassley of Iowa turned up the heat in his investigation into how federal securities regulators have handled SAC Capital Advisors, sending a letter to the Securities and Exchange Commission today asking the SEC to explain how it handled referrals regarding the hedge fund.

Earlier this month, Grassley asked the Financial Industry Regulatory Authority for information on 20 trades that Finra referred to the SEC for possible investigation. Some of the trades were made around the time of merger announcements or other market moving events, which can be an indicator that insider trading may have occurred.

“One of Congress’ most important jobs is to perform constitutionally designated oversight over the executive branch of government. Toward that end, I have had a longstanding interest in whether the Securities and Exchange Commission is properly policing and regulating our financial markets on behalf of pension holders with investments in securities and other investors,” Grassley wrote in the letter to SEC Chair Mary Schapiro.

The government’s huge investigation into insider trading, which resulted in the conviction of the Galleon Group hedge fund head Raj Rajaratnam earlier this month, has reached into SAC Capital, one of the largest hedge funds in the world. Two SAC portfolio managers pleaded guilty to making illegal trades based on confidential information.

SAC insists that it takes strong measures to prevent illegal trading by its portfolio managers.

Grassley’s letter explains that the purpose of his inquiry is not to find wrongdoing at SAC but to discover whether the SEC is adequately investigating insider trading.

“The function of congressional investigations is not to establish whether any private firms have violated the law, but rather to examine particular facts and circumstances in order to assess how well the agencies created by Congress are executing the authorities granted to them,” the letter explains.

He does, however, describe SAC as “a firm that has been the subject of significant media coverage regarding allegations of insider trading.”

The Republican requests details about how the SEC handled each Finra referral about SAC trades, how the number of referrals compares with other hedge funds, and whether a Wells Notice was ever drafted for an investigation into SAC. A Wells Notice informs the subject of an SEC investigation that the regulator intends to recommend an enforcement action on the matter.


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