Further Circumstantial Evidence Of Pervasive Insider Trading By SAC?

Tyler Durden's picture

When back in November, long-before anyone had even heard of expert networks, Zero Hedge compiled a forensic analysis of SAC's 13F filings and holdings in various biotech companies (in this case ITMN, CYBX, MYGN) which had undergone actionable clinical trials and the result was either price surges or plunges, we concluded that there was indirect evidence that at least based on changes in stock holding patterns, SAC, one could certainly claim, was trading with a near-100% batting average ahead of critical clinical trial outcomes, leading to questions about trading propriety of the world's most infamous hedge fund. We also repeatedly asked the question: "Did
SAC consult with an expert network or an outside consultant on any of
the trades?" This was before it was made clear a few weeks later that there was a huge SEC operation looking at expert network hedge fund collusion. We are happy to see that today, roughly three months later, Bloomberg has extended our holdings analysis and has come to the conclusion that "SAC’s trading mimics insider dealings identified by prosecutors." In other words, the circumstantial evidence against Stevie Cohen and his trading methods continues to mount.

From Bloomberg:

SAC Capital Advisors LP traded at least 11 stocks near the time of insider trading in the same shares that prosecutors have identified at other hedge funds, according to data compiled by Bloomberg.

Former SAC portfolio managers Noah Freeman and Donald Longueuil obtained material, nonpublic information on two of the 11, Advanced Micro Devices Inc. and Marvell Technology Group, in a conspiracy beginning before they joined the hedge fund in 2008, according to a lawsuit filed this week by the Securities and Exchange Commission. The SEC accuses Longueuil of trading Marvell shares in May 2008 based on an illegal tip from Freeman. SAC hired Freeman that June and Longueuil that July.

SAC securities filings from 2006 through 2009 show position changes in at least nine other stocks during periods when prosecutors have said Galleon Group LLC co-founder Raj Rajaratnam and others were trading based on insider tips. The companies are Akamai Technologies Inc., Atheros Communications Inc., ATI Technologies Inc., Clearwire Corp., EBay Inc., Google Inc., the former Hilton Hotels Corp., Intel Corp. and Polycom Inc.

The $12.8 billion hedge fund’s positions in the 11 stocks moved up or down consistent with buying and selling that federal prosecutors have described in criminal filings related to other insider trading cases, the data compiled by Bloomberg show. Rajaratnam is awaiting trial next month after pleading not guilty to a 19-count U.S. indictment alleging securities fraud.

This is pretty much precisely what Zero Hedge observed, and what caused us to speculated back in November that all the peripheral investigations in insider trading were merely a smokescreen focusing on SAC. This is before it was known that SAC is indeed the chief target in the SEC's biggest insider trading bust in history.

Bloomberg goes on to observe several specific cases of what can only be described as blatant insider trading collusion:

Earlier that year, in March 2008, Rajaratnam received a tip that Intel planned to invest in Clearwire, a broadband service provider, according to government lawyers. Galleon bought 260,800 Clearwire shares just before the stock jumped on news reports of talks with Intel, prosecutors said.

SAC added 1.1 million shares of Clearwire to its holdings in the same quarter, which ended about a week after Galleon’s purchases on March 24 and 25. It then sold two-thirds of its position by the end of the next quarter, the hedge fund’s SEC filings show.

The SEC suit against Longueuil says he generated a $2.5 million trading profit in Marvell Technology in May 2008 based on the illegal tip from Freeman. SAC owned 309,636 shares of Marvell on June 30, 2008, according to its SEC filings, and also held options to buy and sell more shares.

Later, in January 2009, an employee of Marvell told a Galleon portfolio manager of a reduced internal revenue forecast at the Santa Clara, California-based maker of computer chips, according to government correspondence with Rajaratnam’s defense attorneys. During that same quarter, SAC liquidated its 203,498 shares of Marvell, the hedge fund’s filing shows.

As a reminder this is how the analysis went when it was performed last:

When we first looked at the HGSI news, we pored through CapIQ data of who else may have dumped the stock in advance of the clinical trial. Two other names stuck out: HealthCor and... SAC. This is all before we knew about the existence of the Balkany transcripts. In "Were There Other Hedge Funds Involved In The Human Genome Sciences Insider Trading Scandal Besides FrontPoint?" we presented the following 13F derived data:

First, here is the FrontPoint 13F historical holdings of HGSI (via
CapIQ). What we have is the proverbial smoking gun right there.

shift away from HGSI stock (and then back into it) is so blatantly
obvious, one can forgive Morgan Stanley for hoping they would get away
with it.

Yet here is where we notice some very comparable action at some other hedge funds.

First: HealthCor Partners:

secondly, and far more curiously, S.A.C. itself, the fund which served
as the springboard for FrontPoint's entire healthcare team:

And the following:

A quick glance at the CYBX stock price over the mid 2004-2005 period, together with SAC's disclosed holdings in
CYBX, reveals an interesting pattern on the long side (obviously
companies don't have to disclosed their short positions in 13F filings).

CYBX P/V chart:

SAC holdings in CYBX:

is interesting is that not only does the CYBX chart demonstrate that
the rabbi was spot on with his stock price recollection, but that SAC
may have well acquired a million shares of the company ahead of its February 3 2005 announcement which sent the stock surging from $24 to the mid $40s. As to whether SAC may have shorted CYBX in advance of the August 12, 2004 adverse 8K which
cut the stock price in half, that alas, can not be determined by 13F
filings. What is obvious is that once the catalytic upside event
occurred and SAC made about $20 million on its 1MM shares (assuming of
course it bought the CYBX shares in advance of the favorable 8K) SAC
never again expressed an interest in CYBX (and in fact its interest in
the name had been dwindling over the several prior quarters as can be
seen in the chart above).

The plot thickens when we take a comparable look at Intermune.

the chart below shows, ITMN is insider trader's dream: two massive
moves in the stock - the first one tripling it from $15 to $45, the next
one plunging from $45 to $10.

What we do know, again courtesy of SAC's
13F filings, is that the firm which previously had rarely had a
concentrated position in ITMN, suddenly went from zero as of December
31, 2010, to almost 2 million shares by the end of Q1... A quarter in
which conveniently the stock tripled. Had SAC bought the stock ahead of
favorable press release from March 9 (InterMune's
fortunes soared along with its stock to as high as $48 a share after a
U.S. Food and Drug Administration advisory panel voted to recommend pirfenidone's approval
), it would have made $60 million virtually overnight. Yet SAC's holding were back down to zero by the end of Q2, a quarter in which on May 4, the stock plunged by almost 80% on this adverse piece of news (The agency refused not only refused to go along with the advisory panel vote but told InterMune that another clinical trial would be required before the agency reconsidered the pirfenidone approval decision).

looking at Myriad Genetics once again reveals a peculiar trading
pattern by SAC. While the transaction in question in MYGN occured
after the particular conversation by the rabbi, readers should keep in
mind that as noted earlier odd patterns would only emerge in long
holding positions: SAC had no obligation to disclosed short bets. And a
long term chart of MYGN indicates that the firm sure has had its share
of let downs in the past. Yet even just looking at the long side begs a
question: as can be seen on the chart below MYGN, announced a cut in
guidance on
May 5, which led to a trouncing of the stock.

as the 13F summary shows, as of the end of the quarter in which the
beating was administered, SAC owned no shares, after owning 700k the
quarter just prior...

and increasing its holdings to 1mm in the quarter after once the stock
had not only stabilized but had once again jumped on favorable news.

To be sure, all of this continues to be nothing less than circumstantial evidence of insider trading. The smoking gun, as we suggested previously would be a transcript of an expert network conversation, or a memo which indicates that the reason for purchasing or selling stock is based on non-material information. On the other hand, this is precisely the easiest evidence to cover up in what even the SEC is starting to realize is nothing less than a "mosaic theory" of information arbitrage, which also happens to be a great ploy to divert legal attention from the SEC's incompetent lawyers.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Alcoholic Native American's picture

There is no such thing as traitors or insider trading in a post 9/11 world. Duh!

AN0NYM0US's picture

Maybe Steve should buy ZH


To be sure, all of this continues to be nothing less than circumstantial evidence of insider trading.

Michael's picture

About a million times over he could. Here is where the SEC can recoup fines.

Art collector
Cohen began collecting art in 2000, and over the past several years has become a prominent collector, appearing on Art News magazine's "Top 10" list of biggest-spending art collectors around the world each year since 2002, and Forbes magazine's "Top Billionaire Art Collectors" list in 2005. To date, Cohen has bought around $700 million worth of artwork; in 2003, the New York Times reported that in a five-year period, Cohen spent 20% of his income at art auctions.

Cohen owns between 4.7% and 5.9% of the stock of Sotheby's auction house, which has been described as a "significant stake."

He is reportedly building a private museum for some of his artwork on his Greenwich property. In the winter of 2005, it became known that in 1999 Cohen had bought Edvard Munch's "Madonna". Reportedly, this was for $11.5 million, a record price for any Munch painting to this date.

His tastes in collecting changed "quickly" from Impressionist painters to contemporary art. He also collects 'trophy' art—signature works by famous artists—including a Pollock "drip" painting from David Geffen for $52 million and Damien Hirst's The Physical Impossibility of Death in the Mind of Someone Living, a piece that the artist had bought back from Charles Saatchi for $8 million. In the last two years, he reportedly paid $25 million each for a Warhol and a Picasso. He is a top patron of the Marianne Boesky art gallery.

In 2006, Cohen remarked that repairing his suspended shark artwork, a cost estimated to be a minimum of $100,000, was an "inconsequential" expense. Since the shark itself is over 10 years old, it has begun to rot and requires replacement. The replacement shark has already been caught; once the exhibit is fixed, Cohen will have it moved into his SAC office. Cohen has also placed Marc Quinn's Self, a head sculpture made of frozen blood, in the SAC lobby.

In addition, in 2006 Cohen bought a landscape entitled "Police Gazette” by artist Willem de Kooning for $63.5 million from David Geffen. Also in 2006, Cohen attempted to make the most expensive art purchase in history when he offered to purchase Picasso's Le Reve from casino mogul Steve Wynn for $139 million. Just days before the painting was to be transported to Cohen, Wynn, who suffers from poor vision, accidentally thrust his elbow through the painting while showing it to a group of acquaintances inside of his office at Wynn Las Vegas. The purchase was cancelled, and Wynn still holds the painting. In November 2006, Cohen purchased another Willem de Kooning painting, Woman III, from David Geffen for $137.5 million. 

Alcoholic Native American's picture

Redistribution of wealth! You filthy socialist!

More Critical Thinking Wanted's picture


Redistribution of wealth! You filthy socialist!

Do libertarians recognize redistribution of wealth of ... criminals? Or is the libertarian ban on redistribution of wealth holy and inviolable?

On the other hand, this is precisely the easiest evidence to cover up in what even the SEC is starting to realize is nothing less than a "mosaic theory" of information arbitrage, which also happens to be a great ploy to divert legal attention from the SEC's incompetent lawyers.

Well, I'm all for a bit of SEC bashing (they were particularly inept during the Bush years when insider trading was rampant and not a single big hedge fund was prosecuted), but is there anything the Obama/Shapiro SEC lawyers could have done here, in addition to the (unprecedented, for the SEC) FBI wiretaps they used?

I mean, beyond lobbying Congress to abandon the cherished libertarian legal concepts of "presumption of innocence", "beyond reasonable doubt" and the introduction of new laws that would permit the summary execution of traders suspected of insider trading.

That would decimate NASDAQ volume I'm sure :-)

Also, I'm curious, what is the libertarian position here - should filthy regulation like the ban on insider trading be abolished and should the fantastic libertarian anti-regulatory laissez-faire stock trading environment of the roaring twenties be reintroduced, which reached its world-famous pinnacle of prosperity in 1929?


AR's picture

TYLER (and staff):  Once again, you lead, and produce very good work.  The thought that crossed our mind this morning reading this, was... now we fully understand why it is smart to keep a low profile.  In our shop, we have a very simple rule, do it right, and honest, no shortcuts.  It may take a little longer to accumulate the rewards, but, one never is forced to look over your shoulder trying to cover up misdeeds.  Unfortunately, everyone thinks there are shortcuts to the top.  There is not.  Hence, SAC may discover this in the coming year or two.  Regulators, and prosecutors always need "high profile" players to make examples of.  Mr. Cohen may find it difficult (and expensive) to avoid certain damage.  The rooster is always responsible for the hen house - ultimately.  A run of assets can, and will, quickly manifest upon itself if Stevie is remotely found to have knowledge of events, or is in any way complicit.  Good luck and keep up the good reporting.

Arch Duke Ferdinand's picture
black swan on Feb 11, 6:25 AM said: "Socialism has failed and this is no longer a class war between the rich and the poor."

So Armstrong would have us believe that Blankfein, Dimon, Immelt and Buffet, along with the Prime Dealers, the people who control the Federal Reserve and control the nation, are socialists. Who knew? That the powers behind big oil, big pharma, big insurance, big agriculture and the military industrial complex are all socialists. Who knew. That the wealthiest 400 Americans, who have more assets than one half, or 150 million Americans, are also socialists. Who knew? If what America has become comes from "a war between the rich and the poor", then the war is over and the rich have won.

Since Armstrong doesn't know the difference between a nation run by socialists and a nation run a kleptocratic mafiocracy, here are some examples of each. Norway is a nation run by socialists. The US and Egypt are nations run by kleptocrats. In the US, the losses incurred by the Wall Street banks are socialized amongst what is left among the the American middle class, while the tax money confiscated from that middle class is privatized among Wall Streets elite. Meanwhile, America's labor force has either been outsourced, or it has been replaced by those who are encouraged to slip over our borders. That is not socialism. That is corporatism. Kleptocracy... http://seenoevilspeaknoevilhearnoevil.blogspot.com/2011/02/kleptocracy-government-characterized-by.html

Miss Expectations's picture

"This is before it was known that SAC is indeed the chief target in the SEC's biggest insider trading bust in history."

Does this mean that some SEC Retards Clamber Aboard Zero Hedge's (big) Bus?

sharkbait's picture

What is most disgusting is the preening "Master of the Universe" arrogance these jerks have about how brillianmt they are when all they are doing is trading off tomorrow's newspaper!  what a bunch of pathetic stuffed shirts!