NEW YORK (Reuters) - The conventional wisdom on Wall Street is the clock is running out for U.S. prosecutors to make a case against billionaire trader Steven A. Cohen and his hedge fund SAC Capital Advisors after years of investigation.
There is a legal prohibition against filing criminal charges based on an instance of insider trading more than five years old, and two of the sets of trades viewed by legal analysts as having the best chances of leading prosecutors to Cohen were made five years ago, in July and August of 2008.
But continuing investigations into allegations of insider trading in at least two other stocks, which were first reported by Reuters in December, could extend the deadline to file charges for three more years, according to people familiar with the SAC probe.
Cohen, whom prosecutors recently subpoenaed to testify before a grand jury, has never been charged with wrongdoing. A spokesman for SAC Capital declined to comment.
Based on the five-year statute of limitations on insider trading charges, probes into potentially improper trading in Weight Watchers International (WTW.N) in 2011 and InterMune ITMN.O in 2010 give prosecutors until 2016 to make a case.
So even if they take no action against Cohen or his firm because of improper trading in shares of Dell DELL.O in August of 2008 and Elan ELAN.UL in July of 2008, a legal cloud could continue to hang over the 56-year-old manager and his firm for some time, the sources said.
But given how little is known about the investigations into trading in Weight Watchers and InterMune, it is also possible they may end-up being dead-ends, as has happened with other insider trading probes.
Peter Donald, a spokesman for the FBI declined to comment. Ellen Davis, spokeswoman for U.S. Attorney Preet Bharara in the Southern District of New York, which has brought insider-trading cases against former and current SAC employees, declined to comment.
“Once the government starts looking at anything, they’re going to look at everything,” said C. Evan Stewart, a partner at the law firm Zuckerman Spaeder, who is not connected to the investigation. “They’ve got unlimited resources, which they seem committed to devoting to this to try to find something.”
In the criminal complaint against former SAC portfolio manger Mathew Martoma, who was charged with trading illegally on information about Elan, a person referred to only as ”Hedge Fund Owner“ discusses with Martoma the quick sale of the Elan stock. Sources have confirmed to Reuters that Cohen is ”Hedge Fund Owner.
Martoma, whose lawyer did not respond to a request for comment, pleaded not guilty to the charges and has resisted the government’s efforts to get him to cooperate.
The statute of limitations on the Elan trades is set to run out in six weeks.
The charges against senior SAC executive Michael Steinberg for trading illegally in shares of Dell in August 2008 and Nvidia (NVDA.O) in 2009, also offers a possible prosecutorial path to Cohen. He has pleaded not guilty. His lawyer declined to comment.
In the Weight Watchers case, an SAC trader used various options trades to build a bet that the stock would move by a large percentage after an earnings announcement. The trades were unusual enough that Goldman Sachs (GS.N), SAC’s broker for the options, reported them to financial regulators, according to a source familiar with the matter. A spokesman for Goldman, which is one of SAC Capital’s prime brokers and largest trading party on Wall Street, declined to comment.
No charges have been filed with regards to the Weight Watchers trades, which date back to February 2011, meaning prosecutors have until February 2016 to bring a case.
Another investigation, which Reuters has previously reported, is focusing on suspiciously timed 2010 trades in InterMune, a biotechnology company, made by former SAC employee Nikej Shah. The exact date of the trades is not known.
Shah left his position as a portfolio manager for SAC and is starting a new hedge fund, Mountain Brook Capital. He has not been charged with wrongdoing. He declined to talk to a reporter who visited him in his office in Manhattan.
The five-year statute of limitations on the InterMune trades will run out in 2015.
Another potential source of insider trading cases lies in last year’s testimony in the trial of Anthony Chiasson, a former SAC employee, who left SAC to co-found his own hedge fund, Level Global. Chiasson was found guilty and sentenced in May to six- and-a-half years in prison. He is appealing the conviction.
Chiasson’s source for insider tips, Spyridon Adondakis, testified that he passed inside information to former SAC analyst Jon Horvath and another SAC employee, Ron Dennis.
Horvath was fired from SAC in 2010 and pleaded guilty last year to insider trading and agreed to cooperate with prosecutors. Dennis, who has not been charged, also left SAC in 2010. Attempts to contact Dennis by phone and email were unsuccessful.
Adondakis is still cooperating with the government. Based on the information he has provided, cases against nearly a dozen people have been filed.
Reporting by Emily Flitter; editing by Matthew Goldstein