Enforcers keep on casting for biggest SAC fish
By Reynolds Holding and Richard Beales
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.
U.S. prosecutors havenât given up on landing the biggest fish at SAC Capital. The Justice Department and Securities and Exchange Commission on Tuesday hit Mathew Martoma, an ex-trader at Steve Cohenâs $14 billion hedge fund firm, with criminal and civil insider trading complaints. The enforcers say the underling helped SAC make $276 million. But if they want Martoma to lend a hand reeling in Cohen, theyâll need to deal.
The case could be the biggest yet in a U.S. anti-insider trading campaign that has already netted almost 70 convictions or guilty pleas. Galleon Group founder Raj Rajaratnam made more than $50 million on illegal trades. But thatâs less than a fifth of SACâs alleged haul from investing on Martomaâs confidential information involving a drug trial whose results ultimately sank the stock prices of drug companies Elan and Wyeth.
The dollars, however, may be secondary in this case. Many observers suspect the fedsâ dream target is Cohen himself. And while several former SAC employees have been charged in recent years, the current allegations are the first to suggest a direct link to Cohenâs trading, though he hasnât been charged and wasnât even named, except as âHedge Fund Ownerâ in one complaint and âPortfolio Manager Aâ in the other.
Rather than obtain a full-on grand jury indictment, prosecutors chose to file a complaint against Martoma. That allowed them to set out what they know and perhaps persuade anyone involved to cooperate. The complaint in theory also affords the feds flexibility to withdraw or reduce charges if Martoma decides to give up the goods on Cohen.
For now, though, it seems they donât have enough. The documents say Martoma met with âHedge Fund Ownerâ to arrange trades, but donât mention any evidence that he disclosed the source of his information or indicated it was confidential – essential elements for an insider trading charge. Without secret recordings or damning emails, evidence would have to come from Martoma or other cooperative witnesses.
Already, though, the complaints make interesting reading. They shed light, for instance, on Cohenâs aggressive investment style, involving huge volumes of stock – more than 20 percent of the total market volume in Elanâs securities over one seven-day period. The next chapter in this legal saga could be a real page turner.