Investigation Continues At Troubled Hedge Fund

A federal insider trading probe focused on the hedge fund SAC Capital is causing investors to take action. Investors have pulled an estimated $3.5 billion from the fund in anticipation of additional developments.

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The federal probe of a hugely successful hedge fund may have investors ready to pull out much of their money. SAC Capital is under investigation for insider trading. Several published reports indicate outside investors are worried about that investigation and whether it will touch Steven Cohen, the firm's founder.

NPR's Jim Zarroli reports.

JIM ZARROLI, BYLINE: Investors have pretty much stood by Steven Cohen until now, as nine of his employees have faced charges. But recently, things took a turn for the worst. Several top officials, including Cohen himself, have been subpoenaed; and the firm said it won't cooperate with the government anymore.

Jay Rogers is president of Alpha Strategic Investment Consultants, which advises hedge funds.

JAY ROGERS: And I think at this point most investors are saying, you know what, we've stuck with him this long because his performance has been so good. But inevitably, when the government is coming after you like this, it's distracting and you're not going to be able to keep your eye on the ball.

ZARROLI: This is coming to a head right now because SAC has given its investors a brief window to cash out of the fund this quarter. That window closes at the end of the day. Press reports have indicated that some of its biggest investors, including Blackstone Group, have already given notice they're bailing out.

If enough investors leave, the $14 billion fund will become a lot smaller. Cohen might then be forced to take his firm private, managing only its own funds. Rogers says that won't solve the firms legal problems.

ROGERS: He's still going to face them. The government is not going to go away. It's just, you know, he can do what he does a little bit more privately.

ZARROLI: Meanwhile, Cohen's own legal position remains ambiguous. He has not been charged with any criminal activity and no evidence has been released that he knowingly authorized insider trading. But at least four of his employee's have pleaded guilty and are expected to cooperate with the government. And U.S. officials say the investigation is not over.

Jim Zarroli, NPR News, New York.

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