By Matthew Goldstein and Emily Flitter
NEW YORK, July 24 Federal prosecutors are
continuing to look for ways to build a criminal case against
billionaire trader Steven A. Cohen at the same time as they
prepare to announce criminal charges against his hedge fund on
Thursday, people familiar with the investigation said.
Charges of securities fraud and wire fraud expected to be
filed against the company, according to a source familiar with
The charges against Cohen's $15 billion SAC Capital Advisors
come after nearly seven years of investigations of his firm on
allegations of insider trading.
Authorities do not plan to charge Cohen with any criminal
wrongdoing, said the source.
A spokeswoman for Manhattan U.S. Attorney Preet Bharara
declined to comment as did a spokesman for the Federal Bureau of
A spokesman for SAC Capital also declined to comment.
The filing of a criminal charge against SAC Capital could be
a death-knell for the Stamford, Conn.-based firm that employs
nearly 1,000 people and made billions for the 57-year-old Cohen.
It is likely that Wall Street firms that lend money and
trade with SAC Capital would stop doing so after a criminal
charge is filed. However, since more than $15 billion of the
firm's assets represents money for Cohen and his employees, SAC
Capital has substantial resources to continue functioning.
But even as federal authorities plan to move against Cohen's
business, they are continuing to investigate the activities of
some of his former employees, including former technology stock
trader Dipak Patel, said the source familiar with the matter.
Patel, who once managed up to $1 billion for Cohen and left
SAC Capital in 2011, was implicated in potentially improper
trading by former SAC Capital analyst Wesley Wang, who pleaded
guilty last July and became a cooperating witness for federal
Federal authorities have wiretapped communications involving
Patel and have been considering criminal charges against the
Merrick, N.Y. resident, said another person who has been briefed
on the investigation. Neither Patel nor his attorney, Tai Park,
returned phone calls seeking comment.
Federal prosecutors have debated filing a criminal charge
against Cohen's 21-year-old hedge fund, one of the industry's
most successful, for many months. The fund is one of the largest
payers of commissions on Wall Street, generating more than $300
million a year in trading fees alone for Wall Street brokerages.
Several legal experts, including former federal prosecutors,
said the decision to charge the hedge fund, but not Cohen, with
wrongdoing would be a tacit admission that the nearly seven-year
investigation failed to find sufficient evidence of trading on
illicit inside information by Cohen.
A criminal charge against SAC Capital would be one of the
most high-profile corporate cases since U.S. prosecutors
indicted accounting firm Arthur Andersen for its role in the
Enron scandal, a move that effectively forced the audit firm to
go out of business.
Some legal experts have questioned whether it is appropriate
for prosecutors to charge SAC Capital with criminal wrongdoing
but not charge the firm's founder and leader.
"It's part of an overall level of frustration about this
whole enterprise, and so they're trying to come at it from every
possible angle to destroy this guy's business," said C. Evan
Stewart, a defense lawyer and a partner Zuckerman Spaeder. "When
the government gets an individual or company in its sights and
decides that person's not worth doing business, it's going to
use every tool."
If prosecutors do criminally charge SAC Capital, it will
come after the U.S. Securities and Exchange Commission similarly
decided it had insufficient evidence to file civil fraud charges
Instead, the SEC on July 19 filed an administrative order
against Cohen charging him with failing to supervise his
employees and spotting potential "red flags" involving
allegations of insider trading by two of his employees.
An SAC spokesman said on Friday Cohen will vigorously defend
the failure to supervise charge. A 46-page "white paper"
prepared by SAC Capital's lawyer says Cohen is often too busy to
read emails and never saw an email that regulators contend
included a reference to inside information about computer
company Dell Inc.'s earnings in summer 2008.
Federal authorities began looking into the possibility of
filing a criminal charge against SAC Capital after former
portfolio manager Jon Horvath pleaded guilty to passing on
inside information about Dell during the summer of 2008 to his
supervisor Michael Steinberg and traders at other hedge funds.
Earlier this year, prosecutors charged Steinberg with insider
trading involving shares of Dell. Steinberg has pleaded not
To date, nine former and current SAC Capital employees have
been implicated or charged with wrongful trading while at the
For now, Wall Street appears to be shrugging at news reports
that federal prosecutors are getting closer to filing criminal
charges against SAC Capital.
Wall Street firms are continuing to trade with the fund as
usual, according to several market sources.
A headhunter said in the past several weeks she had gotten
more resumes from employees of SAC Capital, but "not a flood" of
Several investment firms that have money with SAC Capital,
but submitted redemption notices in June to pull their dollars
by year's end declined to comment. SAC Capital has said it plans
to return more than $4 billion in outside investor money by
One outside investor voiced support for Cohen and SAC
Capital, despite the firm's growing regulatory woes.
Ed Butowsky, managing director at Chapwood Capital
Investment Management, which has several million dollars
invested with SAC Capital, said: "I don't believe that criminal
charges against the firm would impact Steve Cohen's traders and
their ability to make money."