* Insurance rater assessing situation at SAC's reinsurer
* Investors redemption deadline Aug. 16
* Next court date is Sept. 24
By Bernard Vaughan and Svea Herbst-Bayliss
July 26 Billionaire investor Steven A. Cohen's
hedge fund pleaded not guilty on Friday to insider trading
charges in federal court, as questions also surfaced about the
future of SAC Capital's Bermuda-based reinsurance unit, SAC Re.
Ratings company, A.M. Best Co., and the Bermuda Monetary
Authority, which regulates insurers on the island, said they
were monitoring developments one day after U.S. prosecutors
charged the hedge fund and various affiliates with four criminal
counts of securities fraud and one count of wire fraud.
A year ago A.M. Best gave SAC Re a top rating. But if the
company were to cut its rating of the unit, which had $567.8
million in assets at the end of 2012, in the wake of criminal
charges, people may shy away from doing business with the
insurer, industry experts said.
"Buyers of reinsurance from SAC Re will be on the phone with
their brokers telling them to move out," said Andrew Barile, an
independent industry consultant. Buyers have plenty of choice in
the reinsurance industry, experts said, adding it would be
relatively easy to change companies.
Separately, outside investors with the $14 billion hedge
fund also expressed some uncertainty about what to do with their
money only weeks before an Aug. 16 redemption deadline.
SAC had presided over a culture from 1999 to 2010 where
employees flouted the law and were encouraged to tap their
personal networks for inside information about publicly traded
companies, prosecutors said on Thursday.
The criminal case imperils the future of one of Wall
Street's largest hedge funds and could end Cohen's career of
managing outside money. His average annualized returns of 25
percent beat most of his rivals.
Prosecutors did not file criminal charges against Cohen
personally, but the U.S. Securities and Exchange Commission has
filed a separate civil case against him for failing to supervise
The SEC is expected to delay its civil case while the
criminal trial proceeds. The U.S. attorney also brought a civil
case seeking forfeitures and money laundering penalties from
The government's evidence in the criminal case includes a
lot of "court-authorized wiretaps" and "a large number of
electronic recordings," such as emails and instant messages,
Antonia Apps, an assistant U.S. attorney who has prosecuted
other insider-trading cases, told U.S. District Judge Laura
Jonathan Gasthalter, a spokesman for SAC, declined to
comment. A representative for SAC Re did not return a call
U.S. Attorney Preet Bharara, who brought the charges,
declined to give a specific dollar figure for the amount his
office is seeking from SAC. But in court papers, prosecutors
contend SAC made "hundreds of millions of dollars" in illegal
profits from insider trading, and the penalties they seek could
be up to three times the amount of the illegal gains.
SAC sought to assure investors its assets were not frozen
and redemptions would continue unhindered. Skittish investors
have already withdrawn roughly $4 billion from the firm in the
first half of the year.
Blackstone Group, Ironwood Capital and Magnitude Capital all
withdrew funds earlier this year. Morgan Stanley, which had
client money invested with Cohen also took steps to reduce
exposure to SAC in the months leading up to the indictment,
according to a person familiar with situation.
Morgan Stanley's exposure is now minimal. A spokeswoman for
the bank declined to comment on whether the bank would seek to
redeem its remaining funds in the wake of the criminal charges.
While some investors have been loyal to Cohen, one person,
who declined to be named, said the new charges worried him. "The
real worry is that the regulators are relentless and their
sights are set on Steve and they will not stop at nothing to
bring him down."
Others said they would wait a little longer to make a
decision and await for any communication from the fund. If
investors submit a redemption request by Aug. 16, they will get
half their cash back by the end of September and the remainder
by the end of December.
WAITING FOR EVIDENCE
The strength of U.S. prosecutors' case will become clearer once
the evidence they are planning to use is laid out, legal experts
"Over the next six months you'll get a sense for why the DOJ
charged the entity and failed to charge any of the high-ranking
executives," said defense lawyer Andrew Wise, a partner at
Several former SAC employees, including Noah Freeman, Jon
Horvath, Donald Longueuil and Wesley Wang, have pleaded guilty
to charges of criminal insider trading.
Judge Swain set a Sept. 24 court date to discuss evidence.
SAC's lawyers on Friday included: Ted Wells, Daniel Kramer
and Michael Gertzman of Paul, Weiss, Rifkind, Wharton &
Garrison; and Martin Klotz and Michael Schachter of Willkie Farr
The criminal case is U.S. v. SAC Capital Advisors LP et al,
U.S. District Court, Southern District of New York, No.
13-cr-00541. The civil case is U.S. v. SAC Capital Advisors LP
et al in the same court, No. 13-05182.