Steve Cohen’s Hedge-Fund Managers Charged With Insider Trading, Cinematic Cover-up


Federal prosecutors unsealed a new round of insider-trading charges on Monday, including two former employees of mammoth hedge fund SAC Capital. The latest salvo in the long-running investigation moves beyond so-called "expert network" companies and onto the hedge funds that used their information. Donald Longueuil and Noah Freeman, two of the managers charged with scheming to trade on corporate secrets they learned from the expert networks, had worked for SAC, the hedge fund run by big-spending Steve Cohen.

Although SAC itself hasn't been accused of any wrongdoing, these charges are part of a growing list of former SAC employees and related funds that have gotten caught up in the investigation. The company was subpoenaed in the investigation last year. In addition to the insider trading charges, the complaint alleges a clumsy cover-up last November, after The Wall Street Journal broke the news about impending busts. Discussing the charges against Longueuil and a third portfolio manager, Samir Barai of Barai Capital Management, Manhattan U.S. Attorney Preet Bharara said:

"It alleges hard core insider trading in stock after stock -- people blatantly trafficking in material, non-public information," he added. "And the lengths to which two of these defendants went to cover their tracks sounds like something out of a bad movie."

According to the complaint, after reading the Journal's article, Longueuil destroyed his flash drive and two external hard drives by ripping them up with two pairs of pliers. FBI surveillance footage from Longueuil's building shows him leaving his apartment at 1:52 a.m. on November 20 and returning at 2:33 a.m.:

"[P]ulled the external drives apart," Mr. Longueuil told Mr. Freeman, according to the complaint. "Put 'em into four separate little baggies, and then at 2 a.m. … 2 a.m. on a Friday night, I put this stuff inside my black North Face … jacket … and leave the apartment and I go on like a twenty block walk around the city … and try to find a, a garbage truck … and threw the s— in the back of like random garbage trucks, different garbage trucks … four different garbage trucks."

What is Bharara talking about? This sounds like an awesome movie. Much more Boiler Room than Wall Street II.

SAC said in a statement that Longueuil and Freeman started misbehaving years before they joined the firm:

“We are outraged by the alleged actions of two former employees, which required active circumvention of our compliance policies and are egregious violations of our ethical standards. The government alleges that their improper conduct together began at their prior firms in 2006 and continued after they joined SAC in mid-2008. They were employed at SAC for a short time and were dismissed in January 2010 and June 2010, respectively, due to poor performance. SAC is continuing to cooperate with the government’s investigation.”

Cohen, who joked with a reporter about the "bull's-eye on my back" in December, did not comment.

Two hedge fund managers charged in insider-trading case, two others make plea deal: feds [NYP]
U.S. Targets Hedge Funds in Latest Wave of Insider Charges [WSJ]
SAC Capital ‘Outraged’ At Insider Trading Claims [WSJ]