If you have been following the news on Wall Street, you may know about the ongoing criminal case against SAC Capital Advisors, which has been indicted for a Criminal Securities Fraud. Let’s take a closer look at just what’s happening with SAC’s hedge fund investor relations and what that means for accredited investors.
Suspicion About SAC
It started with some suspicious hedge fund investor relations. With hedge funds that deal in equities, there is often a promise of “edge” – the incalculable advantage that an investor has – in exchange for high fees, such as those charged by SAC. On July 25th, several American federal agencies, suspecting untrustworthy behavior, backed a criminal case against SAC Capital, a well-known hedge fund behemoth on Wall Street.
The reason for the case: insider trading. Insider trading, an illegal practice, involves trading on the market to the advantage of the individual trader – a person who has access to non-public information through working for a fund like SAC.
As it turns out, former members of SAC’s staff have already been convicted of, or have pleaded guilty to, insider trading. Additionally, SAC has already been under investigation for six years. The conclusion to this investigation has wrought not only a civil suit for failure to supervise, but also a five count criminal indictment: one count of wire fraud, and four counts of securities fraud. The investigation itself has even involved a fired trader, Richard S. Lee, convicted of insider trading himself .
The billionaire founder of SAC, Stephen A. Cohen, is not facing any personal criminal charges. SAC, for the moment, has pleaded not guilty, planning to continue its operations with no changes.
What It Means for Hedge Fund Investor Relations
With SAC’s not guilty plea, at this point in time, Wall Street banks are not publicly ceasing operations with SAC, nor are they denouncing connections to this hedge fund mammoth. But for hedge fund investor relations on the outside, it’s another story.
Current investors are in the process of pulling money from SAC – meaning that about $5 billion out of $6 billion in outside money is being withdrawn. Additionally, many investors have expressed anxieties about any of their connections to SAC that could come under scrutiny, including pension funds.
Employees of the fund are also on their way out. If anything is true at this juncture in the world of investment, having an “edge” is no longer ideal – if anything, it will only attract negative attention.