Steve Cohen: the case for the defence?
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Steve Cohen: the case for the defence?

Euromoney columnist Jon Macaskill imagines what an early draft of the SAC Capital head’s defence against insider trading charges might have looked like, as the SEC brings criminal charges.

Embattled hedge fund manager Steve Cohen’s lawyers recently produced a 46-page white paper designed to demonstrate that he had no knowledge of alleged insider trading by his employees and did not ignore ‘red flags’ about their actions.

The white paper claimed Cohen had not even read an email used to back the SEC’s contentions over trading in Dell stock and would not have had time to open the mail on one of the monitors in his home office in Long Island before conducting trades to cut his own-account exposure to Dell.

Euromoney columnist Jon Macaskill saw an early draft of the white paper by the lawyers.

Preliminary statement

Steve Cohen, founder of SAC Capital

Steve Cohen did nothing wrong and any fair review of the evidence will show that the SEC’s charges are unfounded and constitute a wilful misunderstanding of business practices at SAC Capital and other major hedge funds. Steve Cohen had no reason to open an email marked ‘Urgent!!! Heads-up on Dell’s earnings for next week from Deep Throat.’ Any busy hedge fund manager receives multiple emails each day from subordinates claiming to know sensitive market data in advance of its release.

Preliminary analysis of mails sent by SAC employees to Cohen in 2008 indicates that it would have taken 50 years for him to read all the content, particularly if they included forwarded exchanges between portfolio managers or jokes. By that point, Cohen would have been over 90 years old and would have missed his chance to unload his personal holdings of Dell before the market cratered.

Additional independent analysis by external consultancy firm Oliver McGreenwich concludes that Cohen might still have been long Dell when the firm made its move to go private in 2013, which would have been a total disaster.

Cohen had 19 separate computer monitors ranged above the shark tank in his Long Island home on the day in which the Dell trades took place in 2008, and was conducting his personal account trading with the aid of two rather than his usual three deal executors.

One of these assistants was unfamiliar with the workings of the monitors and in recent tests could not distinguish between the F9 button and SAC’s patented ‘Trade Then Erase’ function. The other trading assistant had been placed in a headlock by Cohen after making a second consecutive sandwich-delivery error and was unable to disentangle himself from his SAC fleece until well after the 1.38 pm point at which the SEC alleges the insider trading in Dell took place.

Cohen had implemented state-of-the-art compliance procedures across all SAC Capital hedge funds ahead of the trades in Dell and certainly well before it became obvious that US regulators were out to get him.

At a meeting titled ‘Whatever it takes to make this go away, I’ll pay it’, Cohen approved the hiring of veteran compliance officers from Drexel Burnham Lambert, Enron, Lehman Brothers and MF Global, under the supervision of a former partner at Arthur Andersen.

The compliance budget for 2013 at SAC Capital is $30 million, which is believed to be a record for the hedge fund industry. Note: the commissioning and execution of this white paper alone has added an extra $1 million to the 2013 compliance budget.

SAC Capital has been a pioneer in the introduction of ‘prophylactic’ restrictions on potential actions that could involve market abuse by portfolio managers. SAC’s newly expanded team of compliance officers now implement a ‘chaperone’ function when portfolio managers are meeting investor relations staff from corporations or consultants with access to non-public information.

Games of ‘higher/lower’ in bottle-service nightclubs are forbidden and any portfolio managers found to be in possession of brown paper bags of cash as they get into their town cars going from Greenwich to Manhattan in the evening are subject to disciplinary proceedings.


The SEC’s allegation that Cohen acted improperly with respect to supervising two portfolio managers lacks any basis in fact. Even if he did it, which he didn’t, Cohen has now become an industry leader in deterring and detecting insider trading.


Attorneys for Steven A Cohen

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