Steve Cohen’s forbidden transcript

August 2, 2011

By Matthew Goldstein

Hedge fund titan Steve Cohen is taking steps to appear more open these days.  Over the past year or so, he’s been showing up at industry conferences, charity events–even allowing himself to be photographed with his wife for a glossy spread in Vanity Fair magazine.

But there are some things the SAC Capital founder is drawing a line in the sand over when it comes to greater transparency, including some of his own words.

Cohen and his legal team are fighting hard to keep hours worth of deposition testimony that he recently gave in a civil lawsuit  under wraps. Last year, the billionaire trader sat for a deposition in the long-running stock manipulation lawsuit filed by Canadian insurer Fairfax Financial against SAC Capital and other hedge funds, including Dan Loeb’s Third Point and Jim Chanos’ Kynikos Associates.

His lawyers argue that making the deposition transcript public–even just extended excerpts–would provide “a road map, from the head of the firm, as to how SAC does business.” Cohen’s legal team contends allowing the transcript to come public would help his hedge fund competitors peel back some of the mystery that surrounds SAC Capital’s long and successful track record.

But Cohen also may not want the deposition released because it provides some inkling into his thoughts about the ongoing federal insider trading investigation, which already has led to guilty pleas by two former SAC Capital traders.

Lawyers for Fairfax say during the deposition “Cohen candidly admitted that he and his fund have been dogged for years with a reputation for obtaining their consistently extraordinary returns through illegal trading.”  The Fairfax’s litigation papers  go on to say that Cohen “takes great offense” at that depiction of his firm. But the Fairfax lawyers note that SAC Capital’s compliance operation, which is supposed to prevent improper trading, may not be rock solid.

Likewise (Cohen) asserted that the compliance manual’s unequivocal requirements that anyone in possession of material non-public information refrain from passing it on and immediately notify the general counsel were also not really rules, but only “guidelines” that were left to the judgment of individuals.

Of course, this is Fairfax’s version of what Cohen said in his deposition. And without the actual transcript, it’s hard to know just what Cohen said and meant.

That’s one reason Reuters, along with Bloomberg, have intervened in the litigation to argue that much of the million of pages of emails, documents and deposition testimony gathered by the parties should be made public under New Jersey law.

Ultimately, it will be up to a court-appointed discovery master in the five-year-old New Jersey lawsuit to decide whether Cohen’s transcript should be allowed to see the light of day.

But you can bet with federal prosecutors continuing their hunt for hedge fund traders that rely on inside information to score big trading gains, there will be a lot of interest in anything Cohen has to say on the subject of compliance and improper trading.

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