Hedge fund to boost department compliance staff and prohibit contact with public company managers
SAC Capital Advisors, a hedge fund with more than $15 bn in assets under management, plans to claw back pay for staff members who violate securities regulations, according to media reports. The firm also plans a series of other measures after it agreed to pay $616 mn to settle insider-trading allegations.
The hedge fund, run by legendary investor Steven Cohen, will also hire more compliance staff, limit the use of consultants and ban its employees from direct contact with upper management at publicly traded companies, according to the Financial Times and Reuters, citing a letter from Cohen to clients.
‘These reforms send an unmistakable message: we have zero tolerance for wrongdoing and if you are caught breaking the rules, it will cost you,’ Cohen says in the letter. He adds that the compliance measures will ‘strengthen our culture of compliance and deter conduct that would threaten the integrity of the firm.’
SAC Capital has been beleaguered by an investigation by US authorities into allegations that the firm profited from insider trading, including illegal tips to former SAC Capital portfolio manager Mathew Martoma. SAC was accused of making $276 mn in trades in pharmaceutical stocks after accepting tips about drug trials.
The probe, which started as early as 2007, has grown to include nine current and former SAC Capital employees. Martoma, who received a bonus of more than $9 mn in 2009 for the performance of his trading in two pharmaceutical stocks, is awaiting trial and maintains his innocence.
The compensation clawback measure will take effect on January 1, 2014 and pay can be recovered from any analyst or portfolio manager who is found guilty on criminal charges or sanctioned by regulators for improper professional behavior. The firm will also hold back pay for any employee who leaves the company during a regulatory or criminal investigation.
Bloomberg News, citing an unidentified person ‘familiar with SAC Capital’, reports that the clawback rule would not affect Martoma or other current or former employees who have already been charged with insider trading.
SAC Capital’s compliance department, which has already expanded to 35 employees from 10 in 2008, will grow to 45 staff members, Cohen says. He adds that the compliance measures will affect hiring policies: ‘We want to let job applicants know that if they do not intend to play by the rules, they should not come to SAC.’