careless whispers

Senator Grassley Wants to Probe Steve Cohen’s Derivatives

Senator Charles Grassley, the top Republican on the Senate Judiciary Committee, has requested information about twenty instances of “suspicious trading” at SAC Capital, the Stamford-based hedge fund run by billionaire Steve Cohen. Grassley’s request signals that Congressional investigators are widening the probe against SAC from early-stage stock-trading into the options market, a financial arena where investors bet on deals and companies, and which includes derivatives. As the Wall Street Journal explains:

Banks and other Wall Street brokers frequently advise clients such as hedge funds on options-trading strategies, including options they could buy or sell when company mergers and other corporate events are anticipated. Options can help traders amplify a bet, and therefore boost their potential profit, frequently while taking less risk than they would by owning shares outright.

Since stock market investors often look to the options market for cues, factoring positive or negative bets by options traders into their buy and sell decisions, activity in the options market can send “ripple effects across markets that can affect a broader range of investors.”

Neither SAC Capital nor Cohen, who runs the firm, have been accused of any wrong-doing and continue to cooperate with investigators. But Grassley’s jump onto the probing bandwagon is yet another sign that the Feds are trying to make Cohen into the next poster billionaire for insider trading, now that fellow hedge funder Raj Rajaratnam has been convicted. The twenty stocks include health-care company shares affected by clinical trials and information divulged at industry conferences. But hey, if the Feds were able to figure out how Cohen has managed to maintain decades of enviable returns on those $14 billion in assets SAC manages, it’s all in a day’s probe.

Options Trading in SAC Probe [WSJ]
Senator Probes Trades at Hedge Fund SAC Capital [AP via ABC News]
Earlier: Insider-Trading Investigation Probes Steve Cohen’s ‘Big Book,’ But Not Steve Cohen

Senator Grassley Wants to Probe Steve Cohen’s Derivatives