S.A.C. Capital Advisors

SAC Capital Advisors was a group of hedge funds founded by Steven A. Cohen in 1992. The firm employed approximately 800 people[1] in 2010 across its offices located in Stamford, Connecticut and New York City, and various offices.[2] It reportedly lost many of its traders in the wake of various investigations by the Securities and Exchange Commission (SEC).[3] In 2010, the SEC opened an insider trading investigation of SAC[4] and in 2013 several former employees were indicted by the U.S. Department of Justice.[5] In November 2013, the firm itself pleaded guilty to insider trading charges and paid $1.2 billion in penalties (in addition to $616 million already paid to the SEC).[6] The firm shrank after returning the vast majority of its outside investor capital (i.e., not controlled by Steven Cohen personally). Point72 Asset Management was established as a separate family office in 2014. SAC ceased to exist as a separate entity in 2016.[7]

SAC Capital Advisors, L.P.
TypeL.P., Private
IndustryHedge funds
Founded1992
FounderSteven A. Cohen
Defunct2016 (converted into Point72 Asset Management in 2014)
HeadquartersStamford, Connecticut
United States
AUM$16 billion (2008)
OwnerSteven A. Cohen
Number of employees
800 (2010)

History

The company's name 'SAC Capital' derived from Steven A Cohen's initials.[8] The company started trading with $25 million in 1992, grew its assets under management to $16 billion, and became the world's highest-returning hedge fund: SAC averaged annual returns of 30% net of fees under a 3% management fee and 50% performance fee from 1992 to 2013. The company's strategy was the "mosaic theory of investing" which develops investment positions based on stock information from many sources.[5] SAC focused on trading liquid, large-cap stocks and later began using fundamental and quantitative strategies.[9] The company had $14 billion in assets under management across four independent portfolios at the start of 2013.[10] According to Bloomberg BusinessWeek magazine, SAC Capital Advisors daily trading activity accounted for as much as 3% of the New York Stock Exchange's daily trading and up to 1% of the NASDAQ's daily trades. SAC Capital maintained offices in Stamford, Connecticut; New York City; Hong Kong; Tokyo; Singapore; London; Boston; San Francisco; and Chicago.[11][12]

On December 9, 2013, SAC agreed to sell its reinsurance business, SAC Re, to a group of investors led by insurance-industry veteran Brian Duperreault.[13]

Biovail

In March 2006, 60 Minutes reported on a lawsuit against SAC filed by Biovail, a Canadian pharmaceutical company which alleged that SAC had manipulated reports on Biovail in order to drive the price of the stock down. SAC denied the charges and said that the stock was overvalued and that the decline was due to shortfalls in earnings and regulatory investigations.[14] In August 2009, the New Jersey Superior Court dismissed all of Biovail's claims against SAC Capital.[15] On February 10, 2010, SAC Capital filed a lawsuit in federal court in Connecticut seeking damages from Biovail for filing "vexatious" litigation against them in 2006.[16] The lawsuit was settled out of court in November 2010.[17] Under the settlement, Biovail's new owner, Valeant Pharmaceuticals, paid $10 million to SAC.[18]

Fairfax Financial Holdings

In July 2006, SAC Capital Advisors was one of three industry participants that were sued by Fairfax Financial Holdings Ltd (FFH) and accused of conspiring to manipulate the company's stock price. FFH alleged SAC Capital and two other hedge funds paid analyst John Gywnn and his employer Morgan Keegan to publish negative reports on FFH and drive its stock price down.[19] In December 2008, Fairfax Financial Holdings provided email exchanges as evidence to the court amongst the hedge funds and Gywnn, that discussed the content of the soon-to-be-published report on FFH.[20] In September 2011, the Superior Court in Morris County, New Jersey, granted SAC Capital Advisors’ motion for summary judgment and removed SAC Capital Advisors, Sigma Capital Management, a division of SAC Capital Advisors, and Steven Cohen as defendants from the case.[21] Judge Stephan C. Hansbury wrote in his judgement: “There is no direct evidence of any sort of conspiracy involving SAC to take down Fairfax."[22]

Insider trading cases

A 2013 article in Yahoo! Finance reported that SAC Capital Advisors had been under investigation by the Securities and Exchange Commission (SEC) for six years.[23] In November 2010, the SEC conducted raids at the offices of investment companies run by former SAC traders.[24] Several days later, SAC received what they described as "extraordinarily broad" subpoenas.[4] In February 2011, two former employees were charged with insider trading.[25] In November 2012, federal prosecutors levied charges against additional former SAC Capital traders.[26][27] Portfolio manager Michael Steinberg was arrested in March 2013 and accused of using inside information to make $1.4 million in profits for SAC Capital.[28] While awaiting a jury verdict, Steinberg fainted, recovered, and was convicted.[29] He was sentenced to three-and-a-half years in prison and ordered to pay a $2 million fine.[30] After the United States Supreme Court declined to review a United States Court of Appeals for the Second Circuit ruling on two related insider trading convictions, which made it difficult to prosecute insider trading cases, Mr. Steinberg’s conviction was dismissed.[31]

In July 2013, SAC Capital was charged with conspiracy and securities fraud, citing the actions of 8 current and former employees.[32] With the conviction of Mathew Martoma on February 6, 2014, and after a four-week trial, a total of eight former SAC Capital employees were either convicted at trial or pleaded guilty.[33] In October 2015, cases against two of the employees were dropped. In June 2019, another employee successfully vacated his plea, and prosecutors later dropped the case, filing a nolle prosequi, marking 3 of the 8 original pleas/convictions being dropped.

In July 2013, the SEC filed a civil suit against SAC for failing to properly supervise its traders.[5][23] Additionally, the U.S. Department of Justice "filed a five count criminal indictment by a federal grand jury, including four counts of securities fraud and one count of wire fraud."[23] SAC said it would "vigorously fight" the accusations and charges,[5][23] but shortly thereafter, in November 2013, SAC Capital agreed to plead guilty to all counts of the indictment, stop managing funds for outsiders, and pay a $1.2 billion fine.[6] It already agreed to $616 million in fines and penalties, totally 1.8 billion. This was split between a $900 million fine in the criminal case and a $900 million forfeiture judgment in a civil money laundering and forfeiture action.[34] Trading teams at SAC have since left to join competing hedge funds such as BlueCrest Capital Management, Millennium Management, and Balyasny Asset Management.[3] On September 8, 2014, Martoma was sentenced to 9 years in prison and was ordered to forfeit nearly $9.4 million, more than his net worth.[35]

See also

References
  1. Steve Cohen's Trade Secrets Bloomberg.com, February 26, 2010
  2. Vickers, Marcia (21 July 2003). "The Most Powerful Trader on Wall Street You've Never Heard Of". Bloomberg Businessweek. United States. Bloomberg L.P. Retrieved 25 July 2006.
  3. Copeland, Rob (December 31, 2013). "SAC Capital Outperforms Peers in 2013". The Wall Street Journal.
  4. Barr, Alistair (23 November 2010). "SAC Tells Investors It Got Government Subpoena". MarketWatch. San Francisco, United States. Dow Jones & Company Inc. Retrieved 15 October 2013.
  5. Flitter, Emily (July 25, 2013). "U.S. charges SAC Capital with insider trading crimes". Reuters. Retrieved July 31, 2013.
  6. Protess, Ben; Lattman, Peter (4 November 2013). "After a Decade, SAC Capital Blinks". New York Times. No. DealBook. New York, N.Y., United States. The New York Times Company. p. B1. Retrieved 6 November 2013.
  7. SEC Investment Adviser Public Disclosure (IAPD)
  8. Gapper, John (16 February 2017). "How Steven Cohen survived an insider trading scandal". Financial Times. Nikkei. Retrieved 23 May 2017.
  9. "Steve Cohen "I don't think any of us got into this business thinking we would make the money we've ended up making. But that's the American way."". Institutional Investor. Institutional Investor LLC. 26 June 2008. Retrieved 15 October 2013.
  10. Agustino Fontevecchia (March 13, 2014). "Steve Cohen Personally Made $2.3B In 2013 Despite Having To Shut Down SAC Capital". Forbes.
  11. Ullatil, Parvathy (December 4, 2009). "SAC Capital grows in Asia with Singapore office". Reuters.
  12. Tunick, Britt Erica (March 1, 2010). "Inside SAC's Shark Tank". Institutional Investor.
  13. Jennifer Ablan (December 9, 2013). "SAC agrees to sell reinsurance business to investor group". Yahoo! Finance.
  14. Stahl, Lesley (26 March 2006). "Betting On A Fall". No. 60 Minutes. United States: CBS News. CBS Interactive Inc. Retrieved 27 May 2008.
  15. Kouwe, Zachery (21 August 2009). "Judge Dismisses Biovail's Suit Against Hedge Fund". New York Times. New York. The New York Times Company. p. B2. Retrieved 30 October 2019.
  16. "SAC Capital turns the tables on Biovail". Reuters. February 19, 2010. Retrieved October 15, 2013.
  17. Valeant Pharmaceuticals Press Release, November 4, 2010
  18. "Biovail Settles With SAC Capital". New York Times. No. DealBook. United States. The New York Times Company. 4 November 2010. Retrieved 10 April 2017.
  19. Weidlich, Thom (February 13, 2009). "Chanos Saw Nonpublic Fairfax Research, E-Mails Show (Update3)". Bloomberg. Retrieved October 15, 2013.
  20. Thom Weidlich (March 16, 2012). "Morgan Keegan Loses Dismissal Bid in $8 Billion Fairfax Suit". Bloomberg Businessweek.
  21. Ahmed, Azam (14 September 2011). "Judge Drops SAC Capital as Defendant in Civil Suit". New York Times. No. DealBook. The New York Times Company. Retrieved 30 October 2019.
  22. "Cohen's SAC Capital scores legal win over Fairfax". Reuters. September 14, 2011.
  23. Nesto, Matt (25 July 2013). "SAC Capital Indicted for Criminal Securities Fraud". Yahoo Finance. Verizon Media. Retrieved 25 July 2013.
  24. Pulliam, Susan (November 22, 2010). "FBI Raids Hedge Funds as Insider-Trading Probe Widens". Online.wsj.com. Retrieved 2013-10-15.
  25. Lattman, Peter; Ahmed, Azam (8 February 2011). "Insider Inquiry Steps Up Its Focus on Hedge Funds". New York Times. No. DealBook. United States. The New York Times Company. Retrieved 30 October 2019.
  26. Lattman, Peter (20 November 2012). "Insider Inquiry Inching Closer to Billionaire". New York Times. No. DealBook. New York. The New York Times Company. p. A1. Retrieved 30 October 2019.
  27. Lattman, Peter (15 March 2013). "SAC Capital to Pay $616 Million in Insider Trading Cases". New York Times. No. DealBook. New York. The New York Times Company. p. A1. Retrieved 15 March 2013.
  28. Katersky, Aaron (29 March 2013). "Hedge Fund Manager Michael Steinberg Charged With Insider Trading". ABC News. ABC News Network. Retrieved 29 March 2013.
  29. Matthews, Christopher M. (2013-12-19). "SAC's Steinberg Convicted in Insider-Trading Case". Wall Street Journal. ISSN 0099-9660. Retrieved 2021-01-31.
  30. "SAC's Michael Steinberg Sentenced to 3.5 Years for Insider Trading". Frontline. Retrieved 2021-01-31.
  31. Goldstein, Matthew (2015-10-22). "U.S. Prosecutor to Drop Insider Trading Cases Against Seven (Published 2015)". The New York Times. ISSN 0362-4331. Retrieved 2021-01-31.
  32. "Judge Sets SAC's Martoma Trial for Inside Trading to November 4". JD Journal. Retrieved 2013-10-15.
  33. "SAC still on hook in insider trading probe: Source". CNBC. February 7, 2014. Retrieved February 7, 2014.
  34. "Manhattan U.S. Attorney Announces Guilty Plea Agreement with SAC Capital Management Companies". FBI. Retrieved 2021-01-31.
  35. "Nine years prison term given to ex-SAC manager". CNBC. September 8, 2014. Retrieved September 8, 2014.
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