WASHINGTON — The Securities and Exchange Commission leveled its most direct shot against billionaire hedge-fund manager Steven A. Cohen on Friday by filing civil charges that accuse him of failing to prevent insider trading.
The SEC alleged that Cohen, who founded and runs SAC Capital Advisors, failed to prevent two of his portfolio managers from illegally reaping profits and avoiding losses of more than $275 million. Both managers provided information to Cohen in 2008 that suggested they had access to inside information, the SEC said. But rather than raise any red flags, Cohen praised one of the managers and rewarded the other with a $9 million bonus, the SEC said.
Cohen, 57, faces possible fines and could be barred from managing investor funds.
Cohen's firm, which once managed more than $15 billion in assets, is at the center of one of the biggest insider-trading fraud cases in history. Four employees have already been criminally charged with insider trading — two of whom have pleaded guilty. And an SAC affiliate has agreed to pay $615 million to settle SEC charges of insider trading.
But legal experts said the SEC's action against Cohen on Friday suggests that the government may not have enough evidence to charge him with insider trading. And rather than seek higher penalties in a federal lawsuit, the SEC chose to bring the case against Cohen before an administrative law judge at the regulatory agency, where the legal burden of proof is lower.
"They've opted for the home court advantage," said John Coffee, a securities law professor at Columbia University.
Coffee said it is significant that the SEC did not charge Cohen with insider trading. That suggests none of his subordinates "flipped" and told investigators that they provided Cohen with information, he said.
A spokesman for SAC Capital said the allegations have "no merit" and that "Steve Cohen acted appropriately at all times." Spokesman Jonathan Gasthalter said Cohen would "vigorously" fight the charges.