The U.S. government and Steven Cohen's embattled hedge fund, SAC Capital, are nearing a deal that could result in a $1 billion settlement. While the details surrounding the agreement have yet to be cemented, it looks certain that the long-awaited conclusion to this issue is approaching.
Part of the settlement may include a stipulation that the hedge fund admits criminal misconduct. This has been a sticking point between the two parties in the investigation, as Cohen denies any wrongdoing. Other parts of the arrangement, including whether or not Cohen will be allowed to continue operating the hedge fund, remain uncertain. One possibility is that he can use his own personal fortune to invest but will not be allowed to tap private liquidity or take client investments or seed capital.
According to The New York Times, the matter remains closely guarded because, until recently, it was feared that the case against SAC Capital would collapse. While several former employees have already gone to prison or have paid steep fines for insider trading convictions, the trail never conclusively led to Cohen. As a spokesperson told the Times, "SAC has never encouraged, promoted or tolerated insider trading."
Another possible outcome is that, if SAC Capital rejects the deal offered, the government could take SAC Capital to court and demand harsher penalties. While it's doubtful that Cohen would ever see a day in jail, it could leave his own wealth, rather than that of his business, in jeopardy.
The risk of insider trading and market manipulation still exists, especially in a volatile investment climate. Investors should consider adopting adaptive exit strategies by using SmartStops in order to protect themselves – and their portfolios – from harm.
Categories: Risk Management, Trading & Portfolio Strategies