Slowly, the fund that made "information arbitrage" a household name, and almost singlehandedly created the expert network industry (first exposed on Zero Hedge in 2009 before the broader public had ever heard of them up on Part 1, Part 2 and Part 3 and all of which was summarized in Are Expert Networks About To Be Exposed As The Ringleader In The Biggest Insider Trading Bust In History?) only to watch it go up in insider trading flames (as we warned years prior), and which no regulator had dared to touch for decades, is coming unwound. The latest details in a story which once again began on the pages of Zero Hedge in 2010 come from Bloomberg, where we learn what everyone already knew, namely that when working for Stevie Cohen "it was “understood” that those assigned to give their best trading ideas to founder Steven A. Cohen would provide him with insider information." Because one doesn't generate 10-20% 'Alpha' (a term which no longer has any meaning in a market exposed to have been driven exclusively by insider trading in the pre-New Normal, and entirely by central planning in the post-New Normal era) year after year and charge 3 and 50 for being just smarter. Being first apparently counts too, but cheating beats all.
The former fund manager, Noah Freeman, pleaded guilty to securities fraud in February 2011 after speaking to Federal Bureau of Investigation agents and federal prosecutors in New York in late 2010, in a so-called proffer session. Defendants use such sessions to determine whether to cooperate with the government against others.
“At SAC Capital you were expected to provide your trading ideas to Cohen,” Freeman said, according to a Dec. 16, 2010, memo written by FBI Special Agent B.J. Kang. “Freeman and others at SAC Capital understood that providing Cohen with your best trading ideas involved providing Cohen with inside information.”
Freeman, one of five current or former SAC portfolio managers or analysts implicated in insider trading, isn’t quoted as saying Cohen, 56, knew the information came from illegally obtained tips, ordered him to provide them or traded on the data. Neither Cohen nor Stamford, Connecticut-based SAC Capital, which manages $14 billion in assets, has been accused of criminal or civil wrongdoing.
Freeman, 36, a 1999 Harvard College graduate who said he once managed a $300 million portfolio of technology stocks at SAC, spoke at length with the FBI about insider trading, according to excerpts of his interviews, which were filed in federal court in New York by Winifred Jiau. Jiau, a former consultant with Primary Global Research LLC, was convicted last year of insider trading and is challenging her conviction.
At one point in his career at SAC, Freeman, who worked in the firm’s Boston office, said he sat next to Cohen.
“Freeman pitched to Cohen many trading ideas over the 18 months he was at SAC and some of the trading ideas involved dirty information,” according to the memo by Kang, who was a New York-based agent at the time. Kang in 2009 arrested Galleon Group LLC co-founder Raj Rajaratnam on insider-trading charges.
When Freeman testified as a prosecution witness last year at Jiau’s trial, he told jurors he’d recorded telephone conversations and also wore a body wire for the FBI when he spoke and met with Longueuil, who’d been his co-conspirator and best man at his wedding.
Freeman told jurors he’d committed insider trading while working both at SAC and at his prior firm, Sonar Capital Management LLC , on at least 18 occasions and informed upon “more than a dozen” people.
“While there’s no way to know if Mr. Cohen is or isn’t a target, the bottom line is this is obviously an ongoing investigation,” Sabino, the law professor said. “Everyone is at risk, not just someone like Cohen or people who worked at SAC, but anyone who’s dipped their toe into the pool of insider trading better watch out as more people plead guilty and agree to cooperate.”
Now everyone shocked, shocked by this information, please raise your hands (but not too high or else the wiretap running along the inside sleeve will become visible)