* US looking at possible insider trading in early 2011
* Weight Watchers shares doubled during the period under
review
* Investigation is in its early stages
(InterMune comment unavailable; SAC official declines comment)
By Jennifer Ablan and Matthew Goldstein and Emily Flitter
Dec 7 (Reuters) – U.S. authorities are investigating Steven
A. Cohen’s SAC Capital Advisors hedge fund for possible insider
trading in the shares of the popular diet company Weight
Watchers International Inc, according to people familiar
with the matter.
The investigation focuses on trading in Weight Watchers
shares in the first half of 2011, when SAC Capital had taken a
sizeable position in the stock, and potentially could implicate
the billionaire hedge fund manager, the sources said on Friday.
Regulatory filings show that Cohen’s $14 billion fund
briefly held 2.1 million shares in Weight Watchers during the
period under scrutiny by authorities – at which time the diet
company’s stock price roughly doubled.
The inquiry is in its early stages and it is not clear
whether anything improper was done either by SAC Capital or
Cohen himself, said the people familiar with the matter, who
requested anonymity. The trading in Weight Watchers would be
permissible as long as it was based on fundamental research or
derived from individuals who did not have access to non-public
corporate information.
An SAC Capital spokesman said the firm was not aware of any
investigation involving Weight Watchers. A spokeswoman for
Manhattan U.S. Attorney Preet Bharara declined to comment. A
spokesperson for Weight Watchers did not immediately respond to
a request for comment.
The new line of pursuit ratchets up pressure on Cohen, 56,
one of the hedge fund industry’s most successful and best-known
managers. The spotlight the probe casts on SAC Capital and Cohen
could further rattle the hedge fund’s investors, who account for
roughly 40 percent of the firm’s capital.
Two weeks ago, U.S. prosecutors charged a former SAC Capital
employee, Mathew Martoma, with using inside information to
generate profits and avoid losses totaling $276 million in
shares of two drug stocks. The U.S. Securities and Exchange
Commission also has formally warned SAC Capital that the firm
could face civil charges.
A number of SAC’s investors have said they have not made a
decision on whether to redeem money from the firm. Investors
have until mid-February to put in a redemption notice.
Martoma has not entered a plea but his lawyer has said he
expects to be exonerated. SAC has declined to
comment beyond saying, “Mr. Cohen and SAC are confident that
they have acted appropriately.”
Martoma is the seventh former SAC Capital employee to be
charged or implicated by federal authorities for insider
trading. The criminal complaint against Martoma, who last worked
for CR Intrinsic, an affiliated fund of SAC Capital in 2010, for
the first time alleges that Cohen personally approved the
decision to sell-out of a big stake the hedge fund had in shares
of Elan Corp and Wyeth, now part of Pfizer Inc.
Separately, U.S. authorities are also investigating SAC for
suspicious trading in shares of biotech company InterMune Inc.
in 2010, according to one of the people familiar with
the probes. Officials at InterMune weren’t immediately available
for comment. The SAC spokesman declined to comment on the
InterMune investigation.
Federal authorities have not charged Cohen, whose net worth
is estimated by Forbes at about $8.8 billion as of September
this year. The hedge fund manager has told his investors and 900
employees that neither he nor the firm has done anything
improper in response to Martoma’s arrest.
It’s not clear what has prompted federal authorities to look
into Stamford, Conn.-based SAC Capital’s trading in shares of
Weight Watchers. One of the people familiar with the
investigation said authorities are looking at trading that both
booked hefty profits and avoided losses for SAC Capital.
BIG MOVE INTO WEIGHT WATCHERS
Over his 20 years in the business, Cohen has emerged as one
of the pioneers of sophisticated trading. His funds, which
charge some of the highest fees in the $2 trillion industry, has
boasted an average annual return of 30 percent since launch in
1992.
This year, SAC Capital’s main fund is up about 12 percent,
compared to the industry average of just over 5 percent. SAC
Capital’s only down year was in 2008, when it lost 19 percent of
its value.
Cohen has endured federal authorities looking into trading
at his firm for about five years now. The investigation into SAC
Capital ran parallel with the federal government’s undercover
investigation that led to the October 2009 arrest of Galleon
founder Raj Rajaratnam, who was convicted by a federal jury on
May 2011 on 14 counts of insider trading.
SAC Capital’s big move into Weight Watcher’s stock in early
2011 gained attention in part because it came at a time that the
once-heavyset Cohen had lost about 20 pounds. (It’s not clear if
he used Weight Watchers.) The trader has said he lost the weight
to help with a chronic bad back.
A first quarter 2011 regulatory filing for SAC Capital
showed the firm had acquired 2.1 million shares of the stock.
But by the end of the next quarter, a subsequent filing revealed
the hedge fund had unloaded nearly all of those shares.
It is not uncommon for a rapid-fire trading firm like SAC
Capital to move in and out stocks – even big positions. SAC
Capital, in particular, is not known for holding stocks for a
long time.
SAC Capital’s trading strategy relies on analysts and
portfolio managers gathering information about a company’s
prospects before making a trading decision. Cohen has told
people privately he believes his firm has drawn unwanted
scrutiny from the government because of its long history of
success.
Cohen has become an avid art collector in recent years, with
a number of Jeff Koons sculptures gracing the grounds of his
30-room mansion in Greenwich, Conn.
Cohen, who grew up on Long Island in Great Neck, New York,
is also pursuing the kind of charitable legacy building done by
other famous Wall Street money managers. In 2010, the North
Shore-LIJ’s pediatric hospital was renamed the Steven and
Alexandra Cohen Children’s Medical Center of New York, after
Cohen and his second wife in recognition of their donations.
More recently, he took a minority ownership stake in the New
York Mets baseball team after failing to win the rights to buy
another team, the Los Angeles Dodgers.
(Reporting by Matthew Goldstein, Jennifer Ablan and Emily
Flitter; Editing by Tiffany Wu and Bernard Orr)
