S.A.C. Capital Advisors

SAC Capital Advisors was a group of hedge funds founded by Steven A. Cohen in 1992. The firm employed approximately 800 people^[1] in 2010 across its offices located in Stamford, Connecticut and New York City, and various international satellite offices,^[2] but has reportedly lost many of its traders in the wake of various investigations by the SEC.^[3] In 2010, the SEC opened an insider trading investigation of SAC^[4] and in 2013 several former employees were indicted by the U.S. Department of Justice.^[5] In November 2013, the firm itself pleaded guilty to insider trading charges and paid $1.2 billion in penalties,^[6] although no formal charges have been filed against Mr. Cohen himself. The firm has shrunk after returning the vast majority of its outside (i.e. not controlled by Steven Cohen personally) investor capital. Point72 Asset Management was established as a separate family office in 2014. SAC ceased to exist as a separate entity in 2016.^[7]

History

The company was founded in 1992 with $25 million. SAC became one of the most successful hedge funds, with annual returns averaging 25 percent after fees. The company's strategy was the "mosaic theory of investing" which develops investment positions based on stock information from many sources.^[5] SAC focused on trading liquid, large-cap stocks and later began using fundamental and quantitative strategies.^[8] The company had $14 billion in assets across four independent portfolios.^[9] According to Bloomberg BusinessWeek magazine, SAC Capital Advisors daily trading activity accounts for as much as 3% of the New York Stock Exchange's daily trading and up to 1% of the NASDAQ's daily trades. SAC Capital maintained offices in Stamford, Connecticut, New York City, Hong Kong, Tokyo, Singapore, London, Boston, San Francisco, and Chicago.^[10][11]

On December 9, 2013, SAC agreed to sell its reinsurance business, SAC Re, to a group of investors led by insurance-industry veteran Brian Duperreault.^[12]

Biovail

In March 2006, 60 Minutes reported on a lawsuit against SAC filed by Biovail, a Canadian pharmaceutical company which alleged that SAC had manipulated reports on Biovail in order to drive the price of the stock down. SAC denied the charges and said that the stock was overvalued and that the decline was due to earnings shortfalls and regulatory investigations.^[13] In August 2009, the New Jersey Superior Court dismissed all of Biovail's claims against SAC Capital.^[14] On February 10, 2010, SAC Capital filed a lawsuit in federal court in Connecticut seeking damages from Biovail for filing "vexatious" litigation against SAC in 2006.^[15] The lawsuit was settled out of court in November 2010.^[16] Under the settlement, Biovail's new owner, Valeant Pharmaceuticals, paid $10 million to SAC.^[17]

Fairfax Financial Holdings

In July 2006, SAC Capital Advisors was one of three industry participants that were sued by Fairfax Financial Holdings Ltd (FFH) and accused of conspiring to manipulate the company's stock price. FFH alleged SAC Capital and other two hedge funds paid analyst John Gywnn and his employer Morgan Keegan to publish negative reports on FFH and drive its stock price down.^[18] In December 2008, Fairfax Financial Holdings provided evidence to the court of email exchanges among the hedge funds and Gywnn, discussing the content of the soon-to-be-published report on FFH.^[19] In September 2011, the Superior Court in Morris County, New Jersey, granted SAC Capital Advisors’ motion for summary judgment and removed SAC Capital Advisors, Sigma Capital Management, a division of SAC Capital Advisors, and Steven Cohen as defendants from the case.^[20] Judge Stephan C. Hansbury wrote in his judgement: “There is no direct evidence of any sort of conspiracy involving SAC to take down Fairfax."^[21]

Insider trading cases

A 2013 article in Yahoo! Finance reported that SAC Capital Advisors had been under investigation by the Securities and Exchange Commission (SEC) for six years.^[22] In November 2010, the SEC conducted raids at the offices of investment companies run by former SAC traders.^[23] Several days later, SAC received what they described as "extraordinarily broad" subpoenas.^[4] In February 2011, two former employees were charged with insider trading.^[24] In November 2012, federal prosecutors levied charges against additional former SAC Capital traders.^[25][26] Portfolio manager Michael Steinberg was arrested in March 2013 and accused of using inside information to make $1.4 million in profits for SAC Capital.^[27] In June 2013 nine former SAC employees were charged with conspiracy and securities fraud.^[28] With the conviction of Mathew Martoma on February 6, 2014, after a four-week trial, a total of eight former SAC Capital employees were found guilty.^[29]

In July 2013 the SEC filed a civil suit against SAC for failing to properly supervise its traders and the U.S. Department of Justice "filed a five count criminal indictment by a federal grand jury, including four counts of securities fraud and one count of wire fraud."^[22] SAC said it would "vigorously fight" the accusations and charges^[5][22] but shortly thereafter in November 2013 SAC Capital agreed to plead guilty to all counts of the indictment, stop managing funds for outsiders, and pay a $1.2 billion fine.^[6] Trading teams at SAC have since left to join competing hedge funds, such as BlueCrest Capital Management, Millennium Management, and Balyasny Asset Management.^[3] On September 8, 2014, Martoma was sentenced to 9 years in prison and ordered to forfeit nearly $9.4 million, more than his net worth.^[30]

References