The SEC announced today that it has settled its high-profile lawsuit against hedge fund manager Steven A. Cohen, founder of SAC Capital. Under the Order resolving the case, Cohen will be prohibited from supervising funds that manage outside money until 2018. The SEC had charged Cohen with failing to supervise former portfolio manager Mathew Martoma, who was convicted of insider trading while employed at SAC.
As I noted here in late December, Cohen was prepared to launch the latest constitutional challenge to the SEC's administrative proceedings process as part of his defense. His lawyers stated that they "would have filed that [in mid-December] except for the settlement discussions that had been ongoing.”
The two-year bar on Cohen managing outside money is significantly lighter than the SEC's original request for a lifetime ban. The SEC's case was negatively impacted by the Second Circuit's decision in the Newman case, which led prosecutors to drop one of the insider trading convictions of an employee Cohen allegedly failed to supervise (Michael Steinberg).
Andrew J. Ceresney, Director of the SEC’s Enforcement Division, stated that in addition to the two-year bar, "before Cohen can handle outside money again, an independent consultant will ensure there are legally sufficient policies, procedures, and supervision mechanisms in place to detect and deter any insider trading.” Ceresney stated that "the strong combination of a two-year supervisory bar and additional oversight requirements achieves significant and immediate investor protection and deterrence, while ensuring that the activities of his funds are closely monitored going forward.”
Under the settlement, Cohen neither admitted nor denied the SEC’s finding that he failed reasonably to supervise Martoma and prevent his insider trading.