Lawyers for the firm made an “aggressive presentation,” according to the sources, reviewing the government’s investigation in detail to support their claim that the government did not have enough evidence to charge Cohen.

A lawyer for SAC Capital did not respond to a request for comment. Representatives of the FBI declined to comment.

In the meeting, Cohen’s legal team, led by Martin Klotz of Willkie Farr & Gallagher, spent several hours with top prosecutors for Manhattan U.S. Attorney Preet Bharara, including Deputy U.S. Attorney Richard Zabel and Lorin Reisner, chief of the criminal division.

A representative from the Federal Bureau of Investigation also attended the meeting, the sources said on condition of anonymity.

Cohen’s lawyers, who had asked for the meeting, made a detailed presentation as to why federal authorities did not have enough evidence to charge the billionaire trader with either insider trading or any other securities law violation. They prepared a stock by stock, trade by trade analysis for prosecutors in an attempt to dispel any notion that Cohen had done anything wrong.

Cohen’s lawyers also argued that prosecutors should not file criminal charges against SAC Capital, which has $15 billion under management, because doing so would effectively force the 21-year-old hedge fund to shut down and result in the loss of 1,000 jobs.

Last week, a few weeks after the meeting, prosecutors served a subpoena on Cohen seeking his testimony before a grand jury. Sources said several other executives at the hedge fund also were served with subpoenas seeking their testimony before the grand jury.

Cohen has not been charged with wrongdoing. Federal prosecutors are stepping up the pressure on Cohen’s firm at a time the statute of limitations for bringing charges on some of the trades being investigated by authorities is about to expire.

Cohen and his hedge fund have emerged as the most prominent subjects of the long-running investigation into insider trading in the hedge fund industry.

(Reporting by Emily Flitter and Matthew Goldstein; Editing by Gerald E. McCormick and Doina Chiacu)

In the past week, federal authorities have issued grand jury
subpoenas seeking testimony from Cohen and others at SAC
Capital, The New York Times first reported. Two people familiar
with the matter confirmed to Reuters that subpoenas had been
issued and Cohen was among those served.

A SAC Capital spokesman declined to comment on the
situation as did the firm’s longtime outside lawyer Martin
Klotz. Federal authorities also declined to comment.

Several defense lawyers, including some who are former
federal prosecutors, said the move to subpoena Cohen was curious
as he would likely assert his Fifth Amendment constitutional
right against self-incrimination.

“I don’t know what purpose it serves,” said Michael Bachner,
a former federal prosecutor, who now represents defendants
charged with securities crimes. “I think it’s purely an effort
to cause him to assert his Fifth Amendment privilege and knowing
that will get communicated to the media.”

Others said the move indicated federal authorities may not
be prepared to criminally charge the SAC Capital Advisors
founder with insider trading because it is unusual to seek
testimony from someone under investigation.

Instead, Manhattan U.S. Attorney Preet Bharara may be more
focused on trying to bring a criminal case against Cohen’s
21-year-old hedge fund in an attempt to punish the billionaire
investor in the pocketbook by forcing his fund to shut-down,
they said.

During the course of the six-year investigation, agents have
sometimes referred to SAC Capital as a “criminal enterprise”
during plea negotiations with former employees of Cohen’s, the
lawyers said.

It was unclear how the situation would play out and entirely
possible that neither Cohen nor his fund would be charged with
criminal wrongdoing, lawyers said. Some defense lawyers said the
prosecutors’ attempt to subpoena the 56-year-old Cohen smacked
of desperation given the length of time that SAC Capital has
been a focus of the insider-trading investigation.

The decision by the grand jury may turn out to be the end
game in a long-time probe of insider-trading allegations at the
firm, which has produced some of the industry’s best returns.

It is also unclear how the latest development will play with
SAC Capital’s outside investors, who control roughly 40 percent
of the firm’s assets. Investors, who have already asked to
redeem $1.7 billion from the fund, have until June 3 to submit
another withdrawal request.

But representatives for funds managed by HSBC,
Morgan Stanley and Blackstone Group, all of which
have client money with SAC Capital, declined to comment on how
they will proceed. Blackstone is Cohen’s largest outside
investor with $500 million invested, according to people
familiar with the hedge fund.

The sources said the new flurry of subpoenas went out after
lawyers for SAC Capital met with prosecutors in late April and
discussed ways of resolving the criminal investigation without
any charges being filed in a settlement.

To date, nine current or former SAC employees have been
charged with or implicated in insider-trading while working at
Cohen’s fund. Five have pleaded guilty. In March, the firm
agreed to pay a $616 million penalty to settle a lawsuit arising
from one of the investigations.

SAC Capital told investors on Friday that it would no longer
cooperate “unconditionally” with the U.S. government’s
insider-trading investigation. The next few months would be
critical in the investigation, the fund told investors but did
not elaborate.

While the subpoenas pressure outside investors to withdraw
money, the risks of sticking with SAC Capital are relatively low
because Cohen has agreed to cover any fines and penalties. His
personal wealth is estimated to be between $8 billion and $10
billion. SAC has $15 billion in assets most of which are
invested in relatively liquid stocks and bonds, so the fund
should have no problem unwinding its positions if forced to shut
down.

The decision by prosecutors to seek Cohen’s testimony has
the feel of deja vu.

Roughly 30 years ago, U.S. securities regulators did much
the same thing with Cohen in a civil insider-trading
investigation, some six years before he launched SAC Capital
with just $25 million. Cohen asserted his Fifth Amendment right
against self-incrimination during that 1986 deposition with the
U.S. Securities and Exchange Commission.

But last summer, the SEC questioned Cohen under oath as part
of its civil investigation into insider-trading allegations. And
a few years ago, in a private lawsuit, Cohen was questioned by a
plaintiff’s lawyer about his views on insider-trading laws.

Former federal judge Richard Holwell, now in private
practice, said federal prosecutors may have decided to subpoena
Cohen because he already testified last year before the SEC on
some aspects of the investigation.

“If you’ve already testified as to a subject matter – for
example a particular transaction – the courts would conclude
you’ve willingly waived whatever privilege there was,” said
Holwell.

But there’s another potential exit strategy for the institutional buyers beyond converting to a REIT or flipping homes earlier than anticipated and that’s becoming a home lender.

In Las Vegas, where the institutional buyers have been quite active the past six months, there’s talk about firms like Blackstone Group eventually providing financing to prospective buyers looking to acquire one of their single family homes. Buyers like Blackstone won’t comment on speculation about their single-family home management subsidiaries becoming defacto mortgage lenders. But it makes sense, especially in the case of Blackstone, which now owns more than 25,000 homes nationwide and says it intends to hold onto the homes and rent them out for several years.

If the institutional buyers are serious about renting out homes as opposed to being fast-money flippers, becoming a source of financing for prospective buyers may be the best way to guarantee there will buyers in the future. The financing could be part of a rent-to-own strategy, or a way to lure potential homeowners who might have difficulty getting a mortgage from a more conventional lender. National home builders long have had their own mortgage operations to help enable first-time buyers to get themselves into a new home.

And if the appetite is right, any loans issued by the national home buyers could be bundled into securities–the next wave of residential mortgage backed securities.

All of this is speculative, but it’s something to consider as the buying frenzy continues in Vegas, Atlanta, Phoenix, Florida and southern California. Maybe there is a purpose to what times simply seems like mad money being thrown at the wreckage of the housing bust.

Marchillo is on to something. The once-beleaguered Las Vegas housing market has been on fire since investment firms led by Blackstone Group LP, Colony Capital and American Homes 4 Rent began buying homes here some eight months ago, backed by $8 billion in investor cash to spend nationally.

These big investors and a handful of others have bought at least 55,000 single-family homes across the U.S. in the past year. In the Vegas area alone, they have accounted for at least 10 percent of the homes sold since January 2012, according to a Reuters analysis of housing transactions.

That added firepower helps explain why home prices in this metropolitan area of 2 million people are up 30 percent over a year ago, far more than the national average of 10 percent. Permits for new home construction are up 50 percent, twice the national average.

Local real-estate broker Fafie Moore says private-equity firms and hedge funds have largely “crowded out” local buyers like Marchillo. That’s because the investment firms have broadened beyond their initial focus – buying homes at foreclosure auctions. Now, they are also bidding for homes listed by private owners and banks. In a sign of how freely the money is flowing, Moore notes around 60 percent of all sales are in cash these days.

Fellow broker Trish Nash says she has seen cases where a home gets listed and quickly draws a dozen bids, many in cash. Realtors are talking about a mini-bubble forming here.

“There is an artificial appreciation in our market,” says Nash. “I know (the big investors) say they aren’t going to be flippers, but for them it is all about the bottom line.”

BLOWING BUBBLES

Las Vegas would seem a highly unlikely locale for a new housing bubble. There are at least 20,000 homes in some stage of foreclosure, and the jobless rate hovers near 10 percent, some two points above the U.S. average. A healthy housing market depends on people having good-paying jobs so they can accumulate down payments and finance their mortgages.

But the surge here has another origin: the Federal Reserve’s continuing push to buttress growth in the wake of the 2008 financial crisis, itself the product of the bursting of a much larger housing bubble.

The central bank is pumping the economy full of cash by buying assets such as U.S. government bonds and mortgage securities. Added demand for those assets is pushing their prices up, and hence their yields down. That’s encouraging people to put cheap credit to work at riskier activities that can spur growth – for instance, buying shares in new companies, investing in oil wells or renovating houses.

Prodding investors further out on the so-called risk curve is part of what the monetary mandarins had in mind. But in treating the consequences of the last bubble, the Fed is now spawning new, smaller manias like the Vegas rental rush.

Why Vegas in particular? The market tantalized investors because the crash was so deep here. Even after the recent bounce, prices today are 56 percent below where they were before the bust. The thought was that any recovery would mean easy money. The dry climate makes for lower maintenance costs, too. Similar logic applied to other beaten-down sunbelt cities.

Not everyone is a believer. “The Vegas housing market has only firmed because of speculators,” said Jason Ader, a New York money manager and former Wall Street casino analyst who invested in foreclosed homes in Phoenix a year ago but bypassed Vegas. “Vegas is only doing well for now because of the greater-fool theory” – the belief that even if an investment is iffy, you can sell it at a gain to someone else. That kind of thinking is typical of bubbles.

Cracks are showing in Vegas and beyond. Here, rents on single-family homes were down an average of 1.9 percent in March from a year ago. In other regions targeted by institutional buyers, such as Phoenix, Southern California, Atlanta and Florida, rents are either falling or flat, according to online real estate service Trulia.

It’s also taking longer than planned for institutional buyers to hire contractors, renovate the acquired homes and get them rented out. Industry insiders estimate that roughly half of the more than 55,000 homes acquired by institutions over the past year in the U.S. have yet to be rented.

The combination of rising acquisition costs, prolonged rental lead times and declining rental income is disrupting the spread-sheet analysis behind Wall Street’s bet. That could pose problems for what once seemed like a slam dunk. It could also give pause to stock-market investors as some players list their shares. American Homes 4 Rent, based in Malibu, Calif., has said it expects to file soon for an initial public offering.

“I think it’s a little late to start investing in single-family homes, because some of these larger firms are price-indiscriminate, and pushing prices up,” says Philip Barach, president and co-founder of DoubleLine Capital, a fixed-income mutual-fund firm with $56 billion under management. DoubleLine reviewed the foreclosed-home trade a year ago but passed on it. “In some markets,” Barach says, “they are the only bidders.”

TO FLIP OR NOT TO FLIP

What excited Wall Street in late 2011 was the prospect of getting homes at 30 to 40 percent discounts, using a combination of investor dollars and cheap financing made possible by the Fed’s easy-money policies. The gross annual rental return envisioned on a $100,000 home ranged from 14 percent to 27 percent, depending on the mix of investor dollars and cheap financing. That didn’t include expected annual returns as high as 10 percent from the appreciation in home values.

Those projected returns are eye-popping, considering that the yield on the 10-year Treasury bond is 1.70 percent and big investors can borrow at between 3 and 4 percent.

The calculus: With millions of Americans coming out of the housing crisis unable to get a mortgage because of dented credit histories, renting would be the only option. In a few years, after repairing their credit scores, many of those renters would be buyers.

That was then. Now, some investors are exiting the market, scaling back or dialing down expectations.

Early last year, Oaktree Capital Management agreed to provide up to $450 million in equity to real estate investment firm Carrington Capital Management for its foreclosed-home acquisition program. Carrington was projecting an internal rate of return of 25 percent over a three-year period for its portfolio of single-family homes in several cities, according to a marketing document.

Oaktree is now reluctant to commit more money to the trade after souring on the buy-to-rent strategy, said people familiar with the firms. Oaktree saw returns on rents compress and no longer is comfortable with Carrington’s initial heady yield projections, they said.

In October, hedge fund Och-Ziff Capital Management Group cited a narrowing in rental income for its decision to put its book of 300 homes in Northern California up for sale — a process it has just about completed.

“The math for investors is looking very different,” said Jed Kolko, Trulia’s chief economist.

Vegas home prices are up 30 percent over the past year, with the median home now selling for $161,000, according to the Greater Las Vegas Association of Realtors. Much of that appreciation has come since June, when the institutional buyers began to make their presence known.

Blackstone, which entered the Vegas market in November, has bought over 400 homes at foreclosure auctions, from banks and private listings. Nationally, the private equity firm has bought over 24,000 homes. It is using a combination of $3 billion in investor dollars and a $2.1 billion line of credit arranged by Deutsche Bank.

In Vegas, Blackstone is making up for a slow start. Local realtors Moore and Nash said they’ve begun getting calls from Blackstone, asking them to contact the firm if pending sales fall through. Colony is buying some newly built homes because of the limited supply of foreclosed homes.

Representatives for Blackstone and Colony said they are not daunted by the slump in rents or delays in readying units for tenants in the half-dozen markets they are largely buying in. The firms said they aren’t buying foreclosed homes to flip them and are committed to building out subsidiaries that manage and rent single-family houses.

“This is more of a marathon than a sprint,” said Paul Fuhrman, chief investment officer of Colony’s single-family home subsidiary, which has acquired more than 8,000 homes.

Marcus Ridgway, the new chief operating officer of Blackstone’s Invitation Homes subsidiary, said his firm’s strategy doesn’t rest on the performance “of one single market, and can rely on other markets to balance returns.”

American Homes, which has bought at least 14,000 homes nationally, did not respond to requests for comment.

The Vegas market has unsteady legs. Statistics compiled by the University of Nevada at Las Vegas show some 40,000 homes are largely vacant – 8 percent of the metropolitan area’s single-family housing stock. Housing research firm RealtyTrac estimates there are 20,000 single-family homes in the metro area either owned by a bank or in some stage of foreclosure.

Some 52 percent of all homeowners still owe more on their mortgages than their residences are worth, more than any other state, according to CoreLogic. It’s even worse in some neighborhoods. An analysis by RealtyTrac for Reuters found that in about half of the zip codes in the Vegas metropolitan area, at least 70 percent of homeowners not in foreclosure were under water on their mortgages.

Economists say with unemployment in Nevada at 9.7 percent, there’s not much real growth underpinning the surge in home prices and new construction.

A big source of the buying is the big guys. Between them, Blackstone, Colony, American Homes and a joint venture involving Apollo Global Management and Haven Realty Capital have acquired more than 1,500 homes in Las Vegas. A half-dozen smaller investment firms are also buying homes.

Much of the buying is in a crescent that begins in North Las Vegas and runs along the city’s western and southern edges. This is where some of the newest homes have been built and where price appreciation has tended to be greatest, realty records show.

With Vegas largely dependent on gambling, tourism and conventions for growth – discretionary spending that tends to recover last — it’s unclear whether the city can support broader buying.

“Betting on home appreciation is not a sure thing,” said Yale University economics professor Robert Shiller, one of the designers of the S&P Case-Shiller Index, which tracks housing sales and prices. “Right now we have the Fed with a massive subsidy to the housing market, but you can’t have a housing recovery without a jobs recovery.”

CASINOS AND SCORPIONS

It’s not all gloom. Gambling revenues are up over last year. Boosters point to the recent acquisition of the long-stalled Echelon casino and resort complex — one of several unfinished eyesores on the Las Vegas Strip — by a Malaysian gaming company for $350 million. Many also are banking on a plan by Tony Hsieh, founder of Zappos, to move the online shoe retailer from the nearby town of Henderson, Nev., to downtown Vegas and pour in some $350 million to create a tech incubator.

Another selling point: The city has a young housing stock, and so properties require fewer renovation dollars than homes in most other battered markets. Vacant homes tend to fare better in a desert climate such as Nevada’s, too – though some investors say scorpions nesting in empty homes are a problem. And since most homes have rock gardens rather than lawns, landscaping costs are low.

In homes that don’t need major surgery, institutional buyers are spending between $10,000 and $15,000 on kitchen appliances, granite countertops, carpets and a paint job. In markets with older homes, renovations can cost $25,000.

One spot the institutional buyers are targeting is Enterprise, an unincorporated town in Clark County. With a population of 108,000, Enterprise, formed only in 1996, has lots of new homes. In 2000, the town had just 15,000 residents. So far, big investors have bought more than 150 houses there, according to county property records, in many cases buying several places on the same street.

Kathryn Kay Chapman, a 47-year-old project manager, rents a two-bedroom house here with her boyfriend and has been looking to purchase a place nearby. Neither can qualify for a loan because of tarnished credit histories, so they decided to buy at a foreclosure auction.

The couple scraped together enough cash to make a bid on a three-bedroom home they’ve been eyeing. Their sweet spot: between $120,000 and $140,000.

On April 22, the house came on the block at one of the auctions held each day in the parking lot of the Nevada Legal News, a few blocks from the Strip. The bidding began at $97,200. But the couple had made a beginner’s mistake: Their cashier’s check was found to be improperly drawn and they couldn’t participate.

It likely wouldn’t have made a difference. The place sold for $155,000, above their limit. Chapman says they may try again, though she suspects they’ll be outgunned.

“We know there is a minute chance we get anything,” she says. “The most frustrating part of all this is how home prices keep going up and up, yet you have so many empty homes.”

(Reporting by Matthew Goldstein, editing by Michael Williams and John Blanton)

 When you think of Cleveland, finance isn’t the first thing that comes to mind.

 If you’re old enough or a rock-and-roll historian, you might say DJ Alan Freed (and i don’t mean DJ as in electronic dance music).1 Or maybe, the old adage  “mistake by the Lake” comes to mind.

But the Cleveland Fed is breaking some new ground with its new and improved financial stress index. In time, I wouldn’t be surprised if the Cleveland Financial Stress Index becomes a regular go to index for traders–especially macro and volatility types. And it probably won’t be long before someone is modeling some algo to track the CFSI performance if it hasn’t already been done.

The first notable innovation with the Cleveland stress index which previously had been published monthly, is now being updated daily. The daily updates will give economists and traders a better real-time look at what is going on in the financial landscape with risk building up in the system.

It’s worth noting that the better-known St. Louis Fed Financial Stress Index is updated weekly. The Kansas City Fed Financial Stress Index is updated monthly.

Beyond the daily updates, the Cleveland index also now tracks stress in real estate and the securitization markets, along with the other sectors it looks at in the stock, credit and funding markets. It’s the addition of the securitization markets, which is most interesting, given the worldwide search for yield–a byproduct of the Federal Reserve’s easy money policies–is reviving various areas of securitization. The three securitized products markets the index will take the temperature of are: residential mortgage  securities, commercial mortgage securities and asset backed securities (think credit cards, auto loans, student debt). The index tracks the spread between these different classes of securitized notes and U.S. Treasuries.

Tim Bianco, an economic analyst with the Cleveland Fed, in writing about the new and improved index, says the index has fallen in recent months as the economy shows signs of improving. But he said most of the stress in the financial system this year has come from the index’s measurement of the securitization market. Writes Bianco:

The individual components of the CFSI were elevated at the beginning of 2012—though not to the same degree as during the financial crisis—but as the year progressed, stress in many of these markets decreased, indicating that the potential for widespread stress had fallen. So far in 2013, the CFSI’s securitization market component has been contributing the most to the overall level of stress, while the foreign exchange and funding markets have been contributing little.

With Wall Street firms slowly cranking up the securitization machinery, that component of the index should bear some close watching in the coming months.

1) For those still not familiar with Alan Freed, let the Ramones fill you in.

After months of contentious debate, officials in San
Bernardino County, in January killed the idea of seizing
troubled home loans in a process known as eminent domain. They
rejected the idea after fierce opposition from Wall Street trade
associations and investors in mortgage-backed securities.

But since then, San Francisco-based Mortgage Resolution
Partners (MRP) has signed advisory agreements with five
California towns that permit the financier-backed group to begin
negotiating a sharp reduction in the dollar value of distressed
loans that are held in securities administered by banks and
mortgage servicing firms.

MRP’s strategy is to either achieve a voluntary agreement
with servicers and banks to reduce the principal owed on loans
that are valued at prices higher than the homes are worth, or
use the club of eminent domain to forcibly seize the loans and
restructure them at a lower price.

MRP, which earns a $4,500 fee for every loan that is
restructured, argues the threat of eminent domain gives
municipalities, hard-hit by the housing crisis, an opportunity
to help cash-strapped homeowners struggling to pay their
mortgages.

But Wall Street trade groups like the Securities Industry
and Financial Markets Association and the Association of
Mortgage Investors argue that forcibly condemning home loans and
rewriting them is a violation of contractual agreements between
a bank and a borrower.

“This type of government intervention is only going to harm
the housing market,” said Chris Katopis, executive director of
the Association of Mortgage Investors, which represents a group
of about two dozen, private bond investors. “This is not a fair
and equitable solution.”

Chris Killian, a SIFMA managing director, said the MRP plan
forces “investors to lock in a loss on a loan” by reducing the
mortgage value, even if the borrower is still making payments.

MRP’s most recent advisory agreement was signed on April 2
with the city of Richmond, Calif., according to public records
and MRPs marketing materials reviewed by Reuters. Other
California communities that have signed similar agreements with
Mortgage Resolution Partners are El Monte, La Puente, San
Joaquin and Orange Cove.

The group is also negotiating with officials in North Las
Vegas, Nevada a community of 227,000 people that was
particularly hard hit by the housing bust. In North Las Vegas,
MRP has identified at least 4,700 underwater home loans,
mortgages that are for more than the homes are currently worth,
that could qualify under its plan.

The revival of eminent domain as a strategy for
restructuring distressed mortgages comes as the U.S. housing
market is showing signs of revival. But according to CoreLogic
there are still an estimated 10.4 million U.S. homeowners who
are underwater on their mortgages.

“It’s not a panacea to deal with the broad issue of
foreclosure, but it is another tool that could be potentially
effective,” said Bill Lindsay, the manager for Richmond,
California, a city of 105,000 people.

The loans MRP seeks to restructure are those packaged into
securities sold by Wall Street banks before the financial
crisis. These private label mortgage securities do not carry a
government guarantee of principal repayment, which distinguishes
them from mortgage debt issued by government-sponsored mortgage
firms Fannie Mae or Freddie Mac.

Loans in private label bonds are not eligible for most
federal government mortgage modification programs.

Last year, private label mortgage bonds returned 21 percent,
making it one of the top performing assets for bond investors,
according to Amherst Securities Group. The bonds rose in value
in response to the Federal Reserve’s decision to buy $40 billion
in government-guaranteed mortgage debt each month and an
improvement in the performance of some of loans.

Traditionally, local governments have used eminent domain to
condemn blighted properties or seize land for public works
projects. Wall Street trade groups have warned communities that
using eminent domain to seize mortgages could spark litigation
and cause lenders to be wary about writing mortgages in certain
towns.

MRP, in its marketing documents, has said it has investors
willing to finance the cost of condemnation so the
municipalities do not have to spend any money seizing mortgages.
The group has not publicly identified its financial backers.

During the first quarter, however, Einhorn’s Greenlight Capital Management demonstrated just how much he and his investors have riding on gold as he recently listed it as the fund’s third largest position, an investor in the fund said.

Only bets on computer maker Apple, a long-time favorite with Einhorn, and General Motors, which he started talking about late last year, outranked his gold position in size.

During the first quarter, Einhorn returned 6.1 percent, keeping pace with many rivals including Pershing Square Capital’s William Ackman who was also up 6.1 percent. But they both lagged behind the broad Standard & Poor’s 500 index which climbed 10 percent.

Gold selling has continued in the second quarter, its price falling another 7 percent this month.

Einhorn, who is believed to largely own physical gold as opposed to shares in the exchange-traded fund, disclosed his top five holdings in a recent communication to investors.

Besides including gold in his main fund, Einhorn, like Paulson also has a dedicated gold fund. Paulson’s dedicated gold fund, the smallest in his lineup of portfolios, lost 28 percent during the first quarter.

A spokesman for Einhorn declined to comment.

While gold is often used as a hedge against inflation the breadth of the recent sell sell-off will underline some expectations that gold’s meteoric rally may be coming to an end after 12 years of gains.

The relentless selling sent gold below $1,500 an ounce for the first time since July 2011, and put the market on track for its worst weekly performance since December 2011.

Industry analysts have said that rising markets generally make for tough conditions for hedge fund managers that specialize in stock picking.

Einhorn also listed Marvel another long-time favorite, and Vodafone as other big holdings.

At the end of the month Einhorn’s fund was 48 percent net long in its position. That means that long bets where a managers expects the securities to rise represented 125 percent of the fund’s holdings while short position where a manager bets that a security’s price will was fall made up 77 percent.

During the first quarter, Einhorn made headlines in the normally secretive hedge fund world for his loud campaign to get Apple to give back some of its cash pile to investors.

Some investors have called the battle with Apple distracting for the manager, particularly as other big Apple investors were not on his side.

Einhorn like other managers is expected to soon send his quarterly letter where he explains his holdings and thoughts in greater detail.

Over the years, Einhorn’s holdings of physical gold have raised some eyebrows, in part because it is difficult to house it. Einhorn has selected a secured facility in Queens, close to his Manhattan office, to store the gold bullion he holds.

Einhorn’s spokesman declined to comment on speculation about the location of the hedge fund’s so-called physical gold.

Greenlight began investing in gold bars in its main flagship fund in 2009. A year later, Einhorn launched a dedicated gold-only fund for investors wanting a more concentrated exposure to the precious metal.

(Reporting By Svea Herbst-Bayliss and Matthew Goldstein; editing by Andrew Hay)

But this week’s escapades involving a former top audit partner at KPMG and his golfing buddy are reminder that the temptation to profit from inside information exists in many industries and professions.

Still, senior hedge fund reporter Svea Herbst-Bayliss reminds us in the following post,  a recent survey found a good portion of people who labor for hedge funds harbor private doubts about the integrity of their colleagues. If the numbers expressed in this survey are anything close to accurate, law enforcement should be busy for quite a while longer.

By Svea Herbst-Bayliss

This week’s insider trading case involving a former KPMG partner has stolen some of the attention from the hedge fund industry. But a survey released this month suggest the regulatory heat won’t be lifting from the industry any time soon.

Half of the respondents in the hedge fund industry survey said they believe their competitors engaged in illegal activity and more than one third said they have felt pressure to break the law or engage in unethical behavior. The poll was  commissioned by law firm Labaton Sucharow LLP, HedgeWorld and the Hedge Fund Association and released earlier this month.

The survey found that  30 percent  of the respondents reported that they had personally observed or had first-hand knowledge of wrongdoing at work.  The survey was released just days before federal agents arrested Michael Steinberg, a portfolio at SAC Capital Advisors, charging him with having traded off illegally obtained information about how technology companies  would report earnings. The U.S. government has spent years investigating how SAC, a $15 billion hedge fund run by Steven A. Cohen, has managed to deliver its double-digit returns for so many years in a row.

The poll shows that 28 percent of the  respondents said they thought their bosses would be unlikely to report misconduct to law enforcement officials if they discovered that a  top performer was using illegally obtained tips and 13 percent of the respondents reported that leaders of their firm would likely ignore the problem.

Yet there is a big caveat with this poll: the sample size. Polling organization ORC International surveyed just 127 people who work in the hedge fund industry. By comparison a fund like SAC Capital employs more than 900 people. And to encourage people to respond  the Hedge Fund Association, which helped commission the poll, promised to send iPod shuffles to 25 randomly selected participants. Some might call that a little bit too much of an incentive. 

SAC Select may not have been one of SAC Capital Advisors’ best-known portfolios during its brief trading history. But the computer-driven trading program may have been one of the more controversial at Steven A. Cohen’s hedge fund.

Setup by a number of SAC Capital’s algo- savvy traders, including Neil Chriss, who left SAC in 2007 to found Hutchin Hill Capital, SAC Select was designed to piggyback on the trades on some of the hedge fund’s top portfolio managers. SAC Select, which at its peak in 2008 managed about $4.2 billion in hedge fund assets, was discontinued sometime in 2009 or early 2010. The strategy was intended as an added investment benefit for long-time SAC Capital clients.

But SAC Select was always controversial within Cohen’s empire because portfolio managers essentially viewed it as a platform simply copying some of their best ideas, say several people familiar with the strategy. Two people familiar with it said it “pissed off” the human traders at SAC.  Cohen is said to have countered that the computer program was not much different then PMs at SAC being regularly required to share their best “high conviction” trading ideas with Cohen each week.

Internally, some referred to SAC Select as SAC’s own ETF (exchange traded fund) because it offered exposure to the best ideas of some 15 top portfolio managers. Still, it’s not clear just how successful SAC Select ever was–performance numbers for the strategy could not be obtained. For many at SAC Capital the strategy was dismissed as an interesting but discontinued experiment.

But on Friday SAC Select resurfaced. The computer-driven portfolio is mentioned in both the Securities and Exchange Commission civil complaint against Michael Steinberg, the 16-year-veteran of Cohen’s fund who is the latest to be charged by federal prosecutors and regulators with using inside information. The SEC alleges that based on some of the same inside information Steinberg used to make a timely placed trade in shares and options of Dell, the SAC Select platform made similar trades.

Here is the SEC complaint, which makes reference to former SAC Capital analyst Jon Horvath, who has pleaded guilty and agreed to cooperate in the case against Steinberg and another portfolio manager:

Shortly after receiving the information from Horvath, Steinberg and Portfolio Manager B executed trades in Dell securities on behalf of the Sigma Capital Fund. As a result of Steinberg and Portfolio Manager B’s trading, the S.A.C. Select Fund, a hedge fund managed by a Sigma Capital affiliate, executed similar trades in the securities of Dell in August 2008.

It’ s not quite a starring role for SAC Select. But it’s another intriguing footnote in the long investigation of Cohen’s more than two-decade old fund, which still remains of the hedge fund industry’s most successful.

(Reuters) – U.S. prosecutors on Friday charged Michael Steinberg, a veteran portfolio manager with Steven A. Cohen’s $15 billion hedge fund, with engaging in insider trading in two technology stocks, the most senior SAC Capital Advisors employee to be charged in the government’s long-running probe.

The five-count indictment was announced a few hours after Federal Bureau of Investigation agents arrived at Steinberg’s home in New York City at around 6 a.m. EDT (1000 GMT) and arrested him.

Federal prosecutors are charging Steinberg, 40, with using inside information to make trades in shares of Dell Inc (DELL.O: Quote, Profile, Research) and chipmaker Nvidia Corp (NVDA.O: Quote, Profile, Research) that generated about $1.4 million in illegal profits for Cohen’s hedge fund.

Barry Berke, Steinberg’s lawyer, said in a statement issued shortly after his arrest that his client had done “absolutely nothing wrong” and his “trading decisions were based on detailed analysis.”

SAC Capital spokesman Jonathan Gasthalter said: “Mike has conducted himself professionally and ethically during his long tenure at the firm. We believe him to be a man of integrity.”

Steinberg, who was suspended last autumn from his post at SAC Capital’s Sigma Capital division after his name surfaced during another insider trading trial, is scheduled to be arraigned later on Friday.

In a related civil complaint against Steinberg, the U.S. Securities and Exchange Commission said the information allowed Steinberg to generate $6.4 million in profits and avoided losses for Cohen’s hedge fund.

Steinberg is one of nine current or former employees of SAC Capital who have been charged or implicated with insider trading while working at Cohen’s 2-decade-old hedge fund.

His arrest had been widely expected after Jon Horvath, a former SAC analyst who worked closely with him, pleaded guilty last year to using illegally obtained information to trade in Dell. Horvath has been cooperating with the government and had implicated Steinberg.

Steinberg has been moving among several hotels in New York City in recent weeks, according to Reuters sources, as he wanted to avoid being arrested at his Upper East Side home where he lives with his wife and two children.

The arrest comes two weeks after SAC agreed to pay a record $616 million to the SEC to settle civil charges of insider trading. SAC neither admitted nor denied wrongdoing at that time.

But the government made clear that that settlement did not preclude further charges.

As part of that settlement, SAC Capital agreed to pay $14 million to settle charges of improper trading in Dell.

(Additional reporting by Svea Herbst-Bayliss and Sruthi Ramakrishnan; Editing by Tiffany Wu and Maureen Bavdek)