Are the Feds Closing in on Billionaire Steven Cohen?

The FBI launches what could be one of the biggest insider trading cases in history

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As part of a high-profile insider trading probe, the FBI raided three large hedge funds Monday. Two targets of the raid, Diamondback Capital Management and Level Global Investors have ties to billionaire investor Steven Cohen, a renowned art collector and #87 on Forbes's world's richest billionaires list. Cohen, manager of SAC Capital Advisors, is a giant in the hedge fund world and news of the probe is generating a lot of buzz in the finance world:

  • The Connection  "The offices of Diamondback Capital Management LLC and Level Global Investors LP were raided," reports The Wall Street Journal. "Both hedge funds are run by former managers of Steven Cohen's SAC Capital Advisors."
  • Is Everybody Thinking What I'm Thinking? ponders Barry Ritholtz at The Big Picture: "This which leads to the obvious question: Is the SEC chasing the big dog (Stevie Cohen), or was this merely a coincidence?" The Washington Post confirms his suspicions, "SAC Capital Advisors, one of the biggest names in the hedge fund world, run by hedge fund master Steve Cohen, is being examined by investigators."

The sweep of the three firms’ offices comes amid investigations into insider trading across Wall Street, part of an aggressive look that could yield criminal charges or significant civil fines. The investigation is said to look into a broad range of firms, from hedge funds to Goldman Sachs.

  • This Has Been in the Works for a While, writes John Carney at CNBC:

It’s been clear for nearly a year that the government has been targeting Steve Cohen’s SAC Capital in its insider trading dragnet. But it seems like the government keeps coming up empty. The Federal Bureau of Investigation’s Special Agent B.J. Kang—the guy who arrested Bernie Maddoff and Galleon founder Raj Rajaratnam—first investigated allegations of trading irregularities at SAC three years ago, although the inquiry concluded with no charges being filed against the firm.... Could it be that the government is engaged in an open-ended fishing expedition against SAC Capital but has come up without charges?

  • The SEC Is Getting Much Smarter About Insider Trading, reports Azam Ahmed at The New York Times:

The investigators have grown much smarter about conducting these investigations. At first, they were examined in one-off instances, following a specific event like a merger ... In addition to learning how to identify and investigate these patterns over the last few years as cases have increased, technology has also improved their ability to find leads in cases. These technology tools allow them to look at vast amounts of data for indicators like suspicious trading just before a merger is announced or other implausible actions that may have occurred across a wide array of firms.

While collateralized debt obligations and credit default swaps revealed how complex financial engineering on Wall Street had become, it seems the Street was still never able to kick an older, more traditional habit: insider trading

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