NEW YORK (Reuters) - The U.S. Securities and Exchange Commission on Friday accused hedge fund mogul Steven A. Cohen of failing to supervise two employees who are facing insider trading charges.
The SEC's action said Cohen failed to supervise former portfolio manager Mathew Martoma and SAC Capital Advisors executive Michael Steinberg.
The SEC charges are part of a long-running probe of Cohen and his $15 billion hedge fund by regulators and federal investigators in which nine one-time SAC employees have been charged or implicated.
"Cohen ignored the red flags and allowed Martoma and Steinberg to execute the trades" in several stocks where the SEC found evidence of insider trading, the agency said.
The charges are not part of a civil lawsuit filed on court; rather, they are contained in an administrative proceeding. In a statement announcing the proceeding, the SEC said it would determine a penalty during the proceeding. It is seeking to bar Cohen from the financial industry.
"The SEC's administrative proceeding has no merit," said Jonathan Gasthalter, a spokesman for SAC Capital.
"Steve Cohen acted appropriately at all times and will fight this charge vigorously.
"The SEC ignores SAC's exceptional supervisory structure, its extensive compliance policies and procedures, and Steve Cohen's strong support for SAC's compliance program."
The 17-page administrative order charges that in the matters involving Steinberg and Martoma, Cohen "received highly suspicious information that should have caused any reasonable hedge fund manager in Cohen's position" to determine whether the employees had acted appropriately.
The order also charges that Cohen "tagged" some of the positions undertaken by the two men in his own portfolio, which entitled them to additional compensation.
Cohen personally oversees about $4 billion, along with a small group of traders, in a portfolio called "the Cohen account," which represents a good chunk of the estimated $6 billion he has invested with his 21 year old hedge fund, Reuters has previously reported.
The bulk of the allegations in the administrative order mirror previous allegations the SEC has filed in civil complaints against Martoma and Steinberg, as well as the criminal indictments against the two men.
"I think they don't have the evidence for insider trading so they brought this," said Thomas Gorman, a partner at Dorsey & Whitney who is not connected to the case, of the SEC charges against Cohen.
"Bringing a case like this under circumstances here is going to be a difficult proof problem for them," Gorman said.
"They are going to have to show that Mr. Cohen was not only in charge but that basically he didn't act in good faith. If he acted in good faith and did not induce these acts directly or indirectly then he's not liable."
(Reporting by Emily Flitter; Editing by Matthew Goldstein, Gerald E. McCormick and Andrew Hay)
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