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SEC preparing lawsuit against SAC hedge fund

By Dina ElBoghdady,November 28, 2012

In a call with investors Wednesday morning, SAC Capital Advisors revealed… (Simon Dawson/BLOOMBERG )

The Securities and Exchange Commission is preparing to file a civil lawsuit against the $14 billion Connecticut hedge fund run by Steven A. Cohen, a legend in the industry whose business has attracted the government’s scrutiny for years.

In a call with investors Wednesday morning, SAC Capital Advisors revealed that it had received a notice from the SEC detailing charges that the government is preparing to file against the firm, according to a person familiar with the call.

It’s unclear when the firm received the notice. But the call came about a week after a former SAC portfolio manager — Mathew Martoma — was charged with running the most lucrative insider-trading scheme ever while working with Cohen. In separate cases, federal prosecutors and the SEC accused Martoma of getting secret tips from a neurologist about the results of a clinical trial involving an Alzheimer’s drug, enabling his hedge fund and others to make more than $276 million in illegal profits or avoided losses.

Cohen was not accused of wrongdoing in either case, nor was he named in the court filings. Instead, the documents refer to the “hedge fund owner” or “Portfolio Manager A.” Cohen is a billionaire with mythical status in the hedge fund world given his firm’s consistently stellar performance.

An SAC spokesman has said that Cohen and the hedge fund are “confident they have acted appropriately and will continue to cooperate with the government’s inquiry.”

On Wednesday’s call, Cohen reiterated that message, the source said. Cohen then turned the call over to SAC President Tom Conheeney, who told investors that the firm would pick up costs for its legal defense.

In recent years, at least five people have been accused of insider trading while working for SAC, including Martoma, who worked for an SAC affiliate called CR Intrinsic Investors.

The SEC case against Martoma, the SAC affiliate and the doctor who provided Martoma the tips stands out because it details a close working relationship between Martoma and Cohen when it came to investment decisions tied to the Alzheimer’s drug.

The SEC alleges that an expert network firm connected Martoma to Sidney Gilman, a doctor who headed the committee that oversaw the clinical trial of the drug under development by Elan and Wyeth, now Pfizer. Gilman tipped Martoma off to the negative results of the trial two weeks before the results were made public in July 2008, the SEC said. Martoma then caused several hedge funds to sell more than $960 million in Elan and Wyeth securities in just over a week, the government alleges.

The SEC declined to comment Wednesday about the Wells notice it sent to SAC. This type of notice is sent to firms to outline the allegations the SEC plans to file in a lawsuit. The firm typically has 30 days to respond. The notices are not always followed by a lawsuit.