As statute of limitations runs out, investigators have insufficient evidence
Hedge fund billionaire Steven Cohen will likely avoid charges related to allegations of massive insider trading at his fund as the five-year statute of limitations expires this month and investigators have failed to compile sufficient evidence against him, according to media reports.
Cohen, whose SAC Capital Advisors is the focus of a US government investigation into insider trading, must be charged this month with any wrongdoing or he will be free from any future charges related to the case. But prosecutors do not have enough evidence against him, according to a report by the Wall Street Journal, citing unidentified people close to the investigation.
Cohen has denied any wrongdoing but the WSJ says a diagram of the targets of the federal probe into the insider trading scheme shows him at the center, and adds that investigators are suspicious that some of the firm’s trades were ‘too good to be legitimate.’
The case stems from allegations that Mathew Martoma, a portfolio adviser with SAC unit CR Intrinsic Investors, illegally obtained confidential information about clinical trials of a drug being developed by pharmaceutical companies Wyeth and Elan. Investment advisers and hedge funds linked to the case made $275 mn in illegal profit and avoided losses by using the confidential information to trade before a negative announcement regarding the drug in July 2008, according to the SEC.
Investigators say Sidney Gilman, the neurology professor selected by the companies to present the drug in trials, gave Martoma repeated updates on the trials and, ultimately, the actual detailed results of the clinical trials ahead of a public announcement on July 29, 2008. Martoma was charged last year with insider trading and his trial is set to begin in November.
The case has become a focal point of criticism against the hedge fund industry and the public perception that it often resorts to unethical means to boost profits. Besides Martoma, investigators have charged or implicated eight other current and former SAC Capital employees. Earlier this year, the SEC won its biggest-ever settlement for an insider trading case when SAC Capital agreed to pay more than $600 mn in relation to the probe.
The SEC says CR Intrinsic and SAC Capital together sold stock in the pharmaceutical companies worth about $700 mn and took about $260 mn in short positions in a single week before the negative announcement in order to profit by around $275 mn. That year, Martoma earned a bonus of $9.3 mn and Gilman was paid $100,000 for consultations, the SEC says.