(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
By Richard Beales
NEW YORK, May 20 (Reuters Breakingviews) - SAC Capital
Advisors may have exhausted its reserves of investor loyalty.
The U.S. government's intensifying legal onslaught at the $15
billion hedge fund firm probably will force the remaining
outside investors, responsible for about $6 billion of the
assets, to run. Even Cohen's legendary 25 pct annual returns at
some point aren't worth the risk.
The latest developments include news that Cohen and
colleagues have been subpoenaed to testify before a grand jury
and SAC's decision late last week that it would no longer
cooperate "unconditionally" with a federal insider trading
investigation. The government's efforts have already ensnared a
clutch of former SAC employees, though neither Cohen nor his
firm has been accused of wrongdoing.
SAC previously tweaked its rules to give investors more time
to decide whether to withdraw money. It couldn't have been an
easy decision. On the back of his trading prowess, Cohen has for
years been able to charge investors at least double the
archetypal industry fees of 2 percent of assets and 20 percent
of gains. Blackstone Group's (BX.N) fund of funds unit, for one,
has taken a "wait and see" approach. The mounting legal
distractions make it difficult to see how Blackstone and others
can allow themselves to wait for much longer.
Prosecutors have been scrutinizing SAC's activities for
almost seven years. A huge $616 million settlement with the
Securities and Exchange Commission in March resolved a batch of
civil allegations, but as it turns out the criminal authorities
didn't back down. It now looks increasingly as though SAC is
squarely in their sights – and Cohen himself may end up there,
Stellar returns, high fees, massive trading volumes, the
accumulation of billions of dollars in personal wealth and an
appetite for eye-catching expenditures have all probably
contributed to Cohen's allure as a target. In fact, two big
purchases – a $155 million Picasso and a $60 million Hamptons
estate – were widely reported right after the SEC settlement was
announced. The pugnacious fund boss may yet escape further legal
trouble. Even if he does, though, SAC's most optimistic future
looks to be as a family office.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- Steven Cohen has received a subpoena to testify before a
grand jury in a U.S. government insider trading investigation
into his hedge fund firm, SAC Capital Advisors, the New York
Times reported on May 19, citing lawyers and executives briefed
on the case.
- The $15 billion hedge fund told investors on May 17 it
would no longer cooperate "unconditionally" with the U.S.
government's insider trading investigation.
- The government's investigation into allegations of insider
trading at Cohen's fund has been heating up over the past
several months. SAC and the U.S. Securities and Exchange
Commission in March reached settlements relating to some of the
allegations for a record sum of $616 million, but the judge on
the case did not grant unconditional approval to the deal.
- To date, nine current or former SAC employees have been
charged with or implicated in insider trading while working at
SAC Capital won't fully cooperate with govt -letter
SAC Capital's Cohen gets subpoena to testify - NY Times
Cohen, Cohen, gone? [ID:nL1N0C7BKJ]
Not feeling so Wells [ID:nL1E8MS5GI]
Getting a nibble [ID:nL1E8MKEDE]
- For previous columns by the author, Reuters customers can
click on [BEALES/]
(Editing by Jeffrey Goldfarb and Martin Langfield)
Keywords: BREAKINGVIEWS SAC/COHEN
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