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Embattled hedge fund tells investors of looming SEC action

November 28, 2012|By Andrew Tangel
  • Steve Cohen is founder and head of the hedge fund SAC Capital Advisors.
Steve Cohen is founder and head of the hedge fund SAC Capital Advisors. (Ronda Churchill / Bloomberg…)

NEW YORK -- The hedge fund SAC Capital Advisors told investors it has received a notice of potential action by the U.S. Securities and Exchange Commission, according to a source familiar with the matter.

Looming civil action by the regulator would take direct aim at the $14-billion hedge fund after federal prosecutors accused one of its former portfolio managers -- Mathew Martoma, who worked at an SAC unit called CR Intrinsic Investors -- of taking part in history's most lucrative insider-trading scheme.

Prosecutors claim the scheme generated $276 million in profits and avoided losses for Martoma's fund. The illicit tips involved an Alzheimer's drug under development by two publicly traded drug companies.

Martoma was the latest former SAC employee to face insider-trading charges in the federal government's crackdown on Wall Street corruption.

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The SEC's so-called Wells notice is a procedural step by which the agency informs targets of investigations it may take action.

While the source would not specify what claims the SEC might level, Bloomberg News reported the potential litigation could involve fraud claims stemming from Martoma's case. Bloomberg also reported the SEC indicated it might take action alleging a breakdown of the hedge fund's management and compliance system.

SAC hosted a conference call with investors Wednesday. The call was not open to the media.

Martoma's attorney has said he expected his client would be exonerated. The criminal case against him has been widely interpreted as an attempt by prosecutors to win Martoma's cooperation against Steven Cohen, who founded and runs SAC. But Cohen has not been accused of any wrongdoing and has said he acted appropriately.

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