SAC Capital, the hedge fund at the heart of what U.S. authorities have said is the largest ever case of insider trading, told its investors on Wednesday that it had been notified of possible enforcement action by the Securities and Exchange Commission.
The $14-billion (U.S.) hedge fund held a 20-minute phone call with investors to tell them that it had been notified that the regulator intended to bring civil fraud charges – a procedure known as a Wells Notice – according to people who listened to it.
Steven Cohen, founder and head of the $14-billion hedge fund, spoke briefly on the call, and said that he was confident he had acted appropriately, according to those people. The call was then led by Tom Conheeney, SAC president.
The move follows the arrest last week of Mathew Martoma, a former SAC portfolio manager, on insider trading charges.
U.S. authorities say that SAC avoided losses of $194-million and made $83-million profit by betting against the share prices of pharmaceutical companies Wyeth and Elan ahead of the results of an Alzheimer’s drug trial.
It is the first time that Mr Cohen has been linked to a wide-ranging investigation into insider trading on Wall Street.
SAC and Mr. Cohen have not been accused of wrongdoing and the company has said it is co-operating with the inquiry. A lawyer for Mr. Martoma has said that he will fight the charges and expects to be exonerated.
The SEC warned the hedge fund in 2003 in a Wells Notice that it intended to file civil charges against it in connection with an investigation into a former SAC trader. He was suspected of trading on research reports written by his wife, a high-profile Wall Street analyst, before they were published. No charges were ever filed against SAC or the trader.