Latest arrest shines light on Cohen's CR Intrinsic unit

BOSTON/NEW YORK Tue Nov 20, 2012 6:31pm EST

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BOSTON/NEW YORK (Reuters) - CR Intrinsic, a unit of Steven A. Cohen's SAC Capital Advisors hedge fund, was long considered the crown jewel in the trader's $14 billion empire. But now, the SAC-affiliated fund is getting something of a rap sheet.

The fund, which used to manage the bulk of the billionaire trader's personal money, is where three out of the five former SAC employees implicated in the U.S. government's insider trading investigation once worked.

On Tuesday, Mathew Martoma became the latest former CR Intrinsic portfolio manager to become embroiled in the probe when he was arrested and charged with having traded on illegally obtained non-public information about two drug companies. Federal prosecutors charged Martoma with using the illicit information to generate profits and avoid losses for Cohen's firm that totaled $276 million.

Cohen was not charged with any wrong doing, but federal prosecutors said the "owner" of the hedge fund signed off on Martoma's recommendation to sell shares of the Elan and Wyeth, now owned by Pfizer.

Others who once worked at CR Intrinsic and have been implicated in the government's long-running insider trading probe include Donald Longueuil and Jonathan Hollander. Longueuil pleaded guilty to insider trading on several technology stocks in April 2011 and was sentenced to 30 months in prison. Hollander, a former CR Intrinsic analyst, paid $222,000 to settle civil charges with the U.S. Securities and Exchange Commission over allegations he profited by trading on a tip about the buyout of a supermarket chain.

Cohen, who founded SAC Capital in 1992, opened CR Intrinsic in 2005. According to people familiar with Cohen, in 2008 he had much of his estimated net worth of $8.8 billion invested with the fund.

In its early days, CR Intrinsic was led by Matthew Grossman, who left the firm in 2007 to found his own hedge fund, Plural Investments, which shut down this August in the wake of mediocre performance.

According to people who had money with SAC, in-house research was especially prized at CR Intrinsic, and the trading horizon was generally a little longer when Cohen's money made up the bulk of assets.

Martoma, who had previously lived in Massachusetts and was arrested in Florida, earned a $9 million bonus in 2008, the same year that prosecutors say the illegal trading occurred.

For SAC, 2008 was a particularly rough year, with the firm posting a 28 percent loss - Cohen's first down year. A good deal of the losses happened at CR Intrinsic, and Cohen responded by moving a lot of money into cash and firing dozens of people at year's end.

(Reporting By Svea Herbst-Bayliss and Katya Wachtel; editing by Matthew Goldstein, Jennifer Ablan and Leslie Adler)

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