Billionaire Hedge Fund Manager Accused Of Failing To Supervise

Friday, the Securities and Exchange Commission accused billionaire hedge fund manager Steven Cohen of failing to supervise two of his employees who have been charged with insider trading. Cohen is the founder of SAC Captial Advisors. Audie Cornish speaks with NPR's Chris Arnold.

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AUDIE CORNISH, HOST:

Now to charges filed today by the Securities and Exchange Commission against the manager of one of the world's biggest hedge funds. Steven Cohen, the billionaire head of SAC Capital Advisors, allegedly allowed insider trading to go on without properly investigating it. That's according to a so-called civil enforcement action the SEC has now filed against Cohen. Joining us now to talk about this is NPR correspondent Chris Arnold. Hey there, Chris.

CHRIS ARNOLD, BYLINE: Hey, Audie.

CORNISH: So help us understand the charges against Steven Cohen, because he's not actually charged with insider trading.

ARNOLD: Right. Two of his portfolio managers at his hedge fund have been charged with insider trading. And from what we can tell, the SEC didn't feel like it had the same level of evidence against Cohen himself, at least so far, because they're charging him with having enough information to strongly suspect that there was insider trading going on and then looking the other way, not investigating it or being a good manager, I guess. It's sort of like the movie "Casablanca," you know, I'm-shocked-to-find-gambling-going-on-here kind of allegation.

CORNISH: So what sort of insider trading are we talking about?

ARNOLD: It's actually interesting. As you read the complaint, some of the details are like out of a Wall Street, you know, Hollywood movie, where there was this Alzheimer's drug and it was in phase II trials. And one of the portfolio managers for Cohen's hedge funds finds out, like, okay, actually the trials aren't going very well. And he starts to allegedly use this information. And so, acting on this the hedge funds allegedly sold hundreds of millions of dollars worth of stock and were able to make a lot of money before the market knew what was going on.

CORNISH: So in a lot of cases like this one, emails are a big factor, right? And prosecutors have found some smoking guns there? Talk a little bit about that.

ARNOLD: Yeah, in this case there's emails. There's also instant messages. And these are interesting, too, when you get down into the complaint and you read them. And I'll read part of this here. At this point Cohen's messaging back and forth with an analyst. And the analyst is saying, do you think your guys know something or do they absolutely have a - or do they know something or do they have a strong feeling? And they go back and forth and the analyst says, the question that I would ask is if it's possible to know that data yet, I could be wrong, but I don't think it is yet.

So the analyst is - appears to be saying, look, this isn't public.

CORNISH: So, Chris, this is a civil case, right. So even if the SEC proves its case, Cohen wouldn't go to jail.

ARNOLD: Right. We should absolutely stress that, that this is not a criminal case. We do know that regulators are seeking to try to bar Cohen from overseeing investor funds in the future, so he couldn't work in that field again. A spokesman for Cohen and the hedge fund said in a statement that the SEC action, quote, "has no merit" and Cohen has 20 days to officially respond.

CORNISH: That's NPR's Chris Arnold talking about civil charges filed by the SEC against the billionaire hedge fund manager Steven Cohen. Thanks, Chris.

ARNOLD: Thanks, Audie.

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