SAC Capital pleads not guilty; reinsurance unit eyed

Fri Jul 26, 2013 6:55pm EDT
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By Bernard Vaughan and Svea Herbst-Bayliss

(Reuters) - Billionaire investor Steven A. Cohen's hedge fund pleaded not guilty on Friday to insider trading charges in federal court, as questions also surfaced about the future of SAC Capital's Bermuda-based reinsurance unit, SAC Re.

Ratings company, A.M. Best Co., and the Bermuda Monetary Authority, which regulates insurers on the island, said they were monitoring developments one day after prosecutors charged the hedge fund and various affiliates with four criminal counts of securities fraud and one count of wire fraud.

A year ago A.M. Best gave SAC Re a top rating. But if the company were to cut its rating of the unit, which had $567.8 million in assets at the end of 2012, in the wake of criminal charges, people may shy away from doing business with the insurer, industry experts said.

"Buyers of reinsurance from SAC Re will be on the phone with their brokers telling them to move out," said Andrew Barile, an independent industry consultant. Buyers have plenty of choice in the reinsurance industry, experts said, adding it would be relatively easy to change companies.

Separately, outside investors with the $14 billion hedge fund also expressed some uncertainty about what to do with their money only weeks before an August 16 redemption deadline.

SAC had presided over a culture from 1999 to 2010 where employees flouted the law and were encouraged to tap their personal networks for inside information about publicly traded companies, prosecutors said on Thursday.

The criminal case imperils the future of one of Wall Street's largest hedge funds and could end Cohen's career of managing outside money. His average annualized returns of 25 percent beat most of his rivals.

Prosecutors did not file criminal charges against Cohen personally, but the U.S. Securities and Exchange Commission has filed a separate civil case against him for failing to supervise two employees.   Continued...

An exterior view of the headquarters of SAC Capital Advisors, L.P. in Stamford, Connecticut July 25, 2013. REUTERS/Michelle McLoughlin