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Steve Cohen’s SAC Capital, the SEC and the True Price of Success

Steve Cohen’s SAC Capital has been under a gun lately. It is under investigation for $14 million in suspicious trades and it is being investigated in conjunction with the SEC Cougar probe. The reason depends on who is asked, but it is possible Steve Cohen is just too good to be believed.


SAC Capital has been very Successful

SAC Capital made 6.5% in the first nine months of the year, compared to an 8.71% for the market (SPY) during the same period. In any case, scrutiny comes with success and SAC is paying the price for strong performance. According to the Financial Times, “Too good to be true is the argument that has dogged SAC Capital for years, as outsiders ponder how a hedge fund responsible for about 2 per cent of daily trading volume on the New York Stock Exchange can persistently be one of the industry’s best performers.” “Insiders argue that it is SAC’s structure developed over almost two decades that is responsible for its success,” explains the Financial Times. “The hedge fund, they say, concentrates on hitting singles and doubles – regular small profits in the stocks it buys and sells – rather than the risk of trying to hit home runs.” He also has a large staff, employing 600 administrative members and 120 portfolio managers, each with 180 research staff. Nonetheless, investigators are curious, ” the Financial Industry Regulatory Authority referred 65 instances of suspicious trading to the Securities and Exchange Commission.”

Steve Cohen Moves to ‘Shore’ Up Reputation

Steve Cohen is doing what he can to “shore up” his, and his fund’s, reputation according to another article in the Financial Times. Some of these moves started in 2008 but were not disclosed until recently. One action Cohen has taken is to stop investing in ex-employees’ funds. Cohen has also been limiting the amount of direct contact “with company officials and Wall Street analysts and brokers.” Cohen adopted a policy in 2007, which “barred its employees from talking to a consultant who had worked at a public company in the previous six months.” The policy was not adopted in reaction to any investigation. Cohen nor SAC Capital has ever been charged with insider trading or any other type of inappropriate actions. However, as reported by the Financial Times, “since 2009, five former SAC employees have pleaded guilty to insider trading, while three others have settled civil fraud allegations with the Securities and Exchange Commission.”

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