* Defense white paper provides rare glimpse of Cohen's
* Claims Cohen receives 1,000 emails/day, reads only 11 pct
* Hearing in SEC admin court scheduled to begin Aug. 26
By Emily Flitter
NEW YORK, July 23 Steven A. Cohen's legal team
claims the hedge fund titan was simply too busy to notice some
of his employees may have been using inside information to make
trades in shares of computer company Dell Inc in the
summer of 2008.
For starters, the lawyers argue Cohen was not even at his
desk at his SAC Capital Advisors hedge fund when the allegedly
improper trading took place on the afternoon of Aug. 26, 2008.
Rather, the billionaire trader was working from his vacation
home in East Hampton, New York, and likely ignoring many of his
emails, including the one U.S. securities regulators say should
have tipped off Cohen that some of his top portfolio managers
may have had access to nonpublic information about Dell's
The 57-year-old Cohen, one of the world's top hedge fund
managers, is fighting a noncriminal proceeding brought by the
U.S. Securities and Exchange Commission last week accusing him
of ignoring "red flags of potentially unlawful conduct." The SEC
contends that two SAC portfolio managers elicited inside
information in 2008 and parlayed it into roughly $275 million.
Cohen's defense lawyers, however, also say that his decision
to sell shares of Dell in his own personal account was dictated
not because of any single email but because his top consumer
portfolio manager was selling shares and Cohen was more or less
simply following that trader's lead.
"The consumer PM was one of the portfolio managers whose
trading ... Cohen followed most closely," according to a lengthy
presentation prepared by Cohen's lawyers. "Cohen would follow
the Consumer PM's sale of a stock by selling stock in the COHE
Account even if technical analyses counseled against selling."
This is among several lines of defense outlined by Cohen's
lawyers in a 46-page "white paper" distributed on Monday to some
of the more than 900 employees at Cohen's $15 billion hedge
fund. A copy of the white paper reviewed by Reuters and other
news organizations may preview some of the arguments Cohen's
lawyers will use to defend the tycoon against a civil
administrative failure to supervise charge filed by the SEC.
The paper offers not only a defense for Cohen but provides a
rare window into the secretive billionaire's professional habits
through descriptions of his trading practices, his communication
methods and the way he is perceived by top deputies.
The civil administrative proceeding, which follows a
multi-year investigation into insider trading at SAC, is the
most serious challenge yet to Cohen and his standing in the
industry he helped build.
The SEC on Friday, in a move to bar Cohen from managing
other people's money, charged he failed to spot potential "red
flags" that SAC executive Michael Steinberg was making improper
trades in Dell and another former employee, Mathew Martoma, was
using improper information to make trades in two health care
The agency said on Tuesday that long-serving Chief
Administrative Law Judge Brenda Murray would preside at a
hearing on the charges scheduled to begin on Aug. 26.
Overall, Cohen is depicted in the paper as a boss who in
many cases has little time to focus on any single issue, instead
using established trading systems to maximize the number of
stocks he trades each day while minimizing the time spent
analyzing the motivations behind them. The lawyers said that on
any given day he receives 1,000 emails and reads only 11 percent
Yet in the few cases in which he devotes deeper attention to
an investing strategy, the paper shows Cohen soliciting opinions
on a single stock from a number of different employees, at times
almost refereeing their disagreements. The paper also claims
Cohen puts a lot of weight on the stock picks of his top
consumer portfolio manager, Gabriel Plotkin, who is not named in
the presentation but who is the person referred to in the
document, sources confirmed.
'A TRADER, NOT AN ANALYST'
In a May 30 deposition, Plotkin said of his boss:
"He trades a lot. He's in and out of stuff a lot," according
to the defense team's paper.
"Steve has no emotion in this stuff. Stocks mean nothing to
him. They're just ideas, they're not even his ideas, and he buys
stuff, sells stuff. I don't know how frequently he trades but
that's what he does," Plotkin said in the deposition, according
to the paper.
"He's a trader, he's not an analyst," Plotkin said. "And he
trades constantly. That's what he loves to do."
On Aug. 26, 2008, according to the paper, Cohen's head
trader, Phillipp Villhauer, telephoned Cohen to inform him that
Plotkin was selling shares of Dell. Just over a minute later,
Cohen issued an order to sell his own Dell shares.
The close timing makes it highly unlikely that Cohen would
have had time to read an email forwarded to him around the same
time in which Steinberg and former portfolio manager Jon Horvath
discussed nonpublic information about Dell's upcoming earnings
announcement, the paper argues.
Steinberg was arrested on March 29 for insider trading and
has pleaded not guilty. His trial is set to begin in November.
Horvath pleaded guilty last year to insider trading in Dell
and is now cooperating with the government.
But the paper also said Cohen did not completely ignore his
deputies' views on Dell. That November, Steinberg said in an
email that Cohen was "pissed" at him for having a bullish view
on Dell even as the 2008 financial crisis worsened. According to
the paper, Steinberg responded by laying out his views to Cohen
and "citing many sources of information - all legal - that he
and Horvath had."