Is SAC Capitals “Stevie” Cohen Next on the FED’s Insider crackdown list?

While Steve Cohen is trying to reorganise his billion-dollar family business, past SAC Capital employees are steadily being caught by prosecutors for illegal trading practices involving insider information. The last victim was Matthew Martoma, a past SAC portfolio manager who was just found guilty in an insider trading case that yielded $276 million in profits to SAC and $9 million personally to himself as a bonus. The conviction is now the 7th against the company as the Feds look to continue tryin to enlace Steve Cohen’s neck.

The jurors considered that Martoma did receive inside information about the clinical trials of an Alzheimer’s drug being developed by both Wyeth and Elan Corp and that he traded on that information before it was made publicly available. SAC was able to profit to the tune of $276 million by first buying shares in both companies and then quickly reversing the position to a short one just before the side effects deriving from the drug were released to the wider public. Both companies slumped and SAC and Martoma made one of the best insider trading hauls ever.

At first, it appeared that Martoma was overly confident about his defence and in fact rejected a deal with prosecutors but the testimony of two doctors directly involved in the drug trials finally caught him out and led the jurors to ultimately find him guilty.

At first the two doctor appeared loathe to incriminate Martoma but after prosecutors offered them immunity from prosecution, they testified against him stating that they passed him information about the drug’s side effects just before the information was released via the regulatory newswires.

As Martoma rejected a pleas deal and was in the end found guilty, he now faces up to 20 years in prison, although there is no known case resulting in more than 12 years of jail time. In fact, as prosecutors seem desperate to get some concrete evidence against Steve Cohen, they may still in fact accept a deal if Martoma changes his mind and can provide them with the information they have been seeking for the past six years. Even though Martoma may still have a small fortune waiting for him when he comes out of prison, recent insider trading convictions against Matthew Kluger and Raj Rajaratnam resulting in 12 years and 11 years respectively of jail time, may seduce him to seek a last minute deal and avoid the worst.

SAC’s past employees Noah Freeman, Donald Longueuil, Jon Horvath, Wesley Wang, Richard Lee, Steinberg and Martoma were all convicted of trading illegalities whilst as a consequence of these revelations, the company itself was closed to outside investors recently and faced a record administrative penalty of a cool $1.8 billion. If these convictions are just a sample of what has been happening for more than 25 years in a company that recorded a very strong annual performance north of 20% per year, then $1.8 billion in contrast represent but a fraction of the total profit that they achieved over the years.

While Martoma, Steinberg, and other past SAC colleagues have been targeted with success by the Feds, Cohen is reorganising his family business, changing its name, and probably preparing to open a revamped SAC business in the near future as so far concrete charges have not been nailed directly on him. But as more and more past employees are found guilty and as the cases and evidence continue to grow, “Stevie’s” days of not being charged appear to be increasingly numbered…