"Everyone in the hedge-fund industry is now trembling" over the federal government's wide-ranging insider-trading investigation, John Coffee, a securities law professor at Columbia University in New York, told Bloomberg today. Probably none are trembling more than the folks at SAC Capital, the $12 billion hedge fund in Stamford, Connecticut. Of the three funds raided as part of the federal probe yesterday, two were helmed by ex-SAC employees. ("They appear to have an interest in some of the traders who used to work at SAC Capital," Coffee, connecting the dots, said this morning, adding that said traders "have to make a quick decision about whether they're going to cooperate ... They will get greater leniency if they give the government bigger fish.") And this afternoon, SAC revealed to investors that it received a government subpoena. The subpoenas don't "shed much light on whom or what the government may be investigating," the firm said, but at this point there's little doubt the big fish they're after is SAC's founder, Steve Cohen, a secretive yet selectively flamboyant billionaire (who has made headlines, coincidentally, for owning a big fish — Damian Hirst's Shark in Formaldehyde).
Since last year, a rash of incidents have left Cohen's enriched blood in the water: In December, an SAC analyst pleaded guilty to exchanging insider-trading tips with the Galleon Group. A few months later, Cohen's ex-wife filed a suit against him that included, among a grab bag of other charges, accusations he had engaged in insider trading from the beginning. Another former SAC analyst was suspended from FrontPoint this month over an insider trading investigation. Oh, and there was an extremely lurid lawsuit accusing an executive at the firm of some seriously creepy behavior. None of these things were singularly damning to the firm's founder, but who cares? As a rabbi who was arrested for trying to extort money from an unnamed "Connecticut hedge fund" that was likely SAC using information about its alleged insider-trading activities told the press, the feds were "thirsty" to nab the fund's manager, and that makes sense: The best way to make up for missing one big fish is snaring an even bigger one. SAC said in a statement that neither the "subpoena nor any other information of which we are aware suggests that anyone at SAC has engaged in any wrongdoing," but whether they've institutionally done anything wrong is almost beside the point: At a company that big, the odds that someone is doing something shady are pretty high. The only question is whether it's bad enough for the Feds to suspend Cohen in formaldehyde — or if they'll settle for the price he paid for the sculpture.