Leaving his legal troubles behind, Steven Cohen will resume managing investor funds within two years.Simon Dawson/Bloomberg
About two years ago, hedge fund king Steven Cohen was caught in a legal quagmire. His firm, SAC Capital Advisors LP, had pleaded guilty to criminal charges of insider trading. Two of his employees – including a top lieutenant – had been convicted and sentenced to years in prison. U.S. securities authorities had accused Mr. Cohen of failing to prevent illicit activity and sought to ban him from the financial industry.
Such troubles might have proved Mr. Cohen's downfall. Instead, in a striking shift, the 59-year old billionaire is putting his legal woes behind him.
In January, Mr. Cohen reached a deal with the U.S. Securities and Exchange Commission that will allow him to resume managing investor funds – as opposed to his own fortune – within two years. The settlement included provisions that subject his firm to additional scrutiny, but cleared a path for Mr. Cohen to rejoin the hedge fund industry he helped build.
"We not only survived an event that would have ended most firms, but we thrived in the wake of it," Mr. Cohen wrote in a note to employees after the settlement was announced. "Closing this chapter of the past gives us flexibility about how we will grow and innovate in the future."
Investors will likely flock to Mr. Cohen if he solicits new funds starting in 2018, predicted Don Steinbrugge of Agecroft Partners, a hedge fund marketing and consulting firm. "On day one [he] would have a couple of billion dollars of outside capital," Mr. Steinbrugge said.
Mr. Cohen's rehabilitation marks the end of an era – a time when a sprawling insider-trading investigation led by Preet Bharara, the top federal prosecutor in Manhattan, generated dozens of convictions and spread fear into trading floors across Wall Street.
Mr. Cohen, one of the best-known traders in the hedge fund industry, was long considered the ultimate target of the investigation. He never faced criminal charges and has denied any wrongdoing.
The closest prosecutors came to Mr. Cohen was the 2013 conviction of Michael Steinberg, a top lieutenant and confidant. Mathew Martoma, another trader at SAC Capital, was also found guilty at trial. Five other former SAC employees were convicted in the investigation.
In 2014, however, an appeals court ruling provided an unexpected boost to Mr. Cohen. It overturned convictions in a related insider-trading case, saying prosecutors had pushed the limits of the law. Specifically, the prosecution had failed to prove the accused individuals knew that insiders were leaking confidential information in exchange for financial gain.
The ruling undermined a number of insider-trading convictions pursued by Mr. Bharara. In October, 2015, his office dismissed its charges against seven people, including Mr. Steinberg. That in turn weakened the SEC's administrative action against Mr. Cohen, which rested on allegations that he had failed to supervise employees engaged in illegal activity.
January's settlement between the SEC and Mr. Cohen was a compromise that "acknowledged that there were compliance issues in play, but nothing that rose to a level that required the insistence that he be barred from the industry," said Jacob Frenkel, a partner at law firm Shulman Rogers and a formal federal prosecutor.
By 2014, Mr. Cohen ceased to manage outside money. After SAC pleaded guilty to criminal charges and paid a penalty of $1.8-billion (U.S.), the firm retrenched and became an operation focused on investing Mr. Cohen's own considerable fortune. The firm, a so-called "family office," is now known as Point72 Asset Management and manages $11-billion.
In January, Point72 opened an office in London, three years after SAC shuttered its outpost there. Douglas Haynes, a former McKinsey & Co. consultant who is now Point72's president, declined to say whether the firm would take in outside capital in 2018, according to a report in The New York Times.
A spokesperson for Point72 did not respond to questions about the firm's future plans.
Mr. Steinbrugge of Agecroft Partners argued that only institutional investors sensitive to reputational risk – pension funds, for instance – might shy away from Mr. Cohen in the future. "Money is going to managers with the strongest brands," he said. "Steven Cohen obviously has a very strong brand."