It is no secret that for many years the SEC has been looking into ways of taking down the most infamous of all "information arbitrage" abusing hedge funds: Steve Cohen's SAC Capital, a quest that has finally accelerated to its inevitable terminal point weeks ago. Of course, had the SEC been reading Zero Hedge, the time to get to that critical civilian conviction would have been far shorter. But where the SEC was demonstrating ongoing incompetence, its peer organization - one with all-importnat criminal enforcement powers - the FBI, was actually several steps ahead, and as Bloomberg reports, is now probing specific trades by SAC, a process which very likely will culminate with criminal charges against one or more people not at CR Intrinsic, but SAC itself. Of course, by several steps ahead, we do mean two years behind Zero Hedge.
Just out from Bloomberg [6]:
SAC Capital Advisors LP’s trading in InterMune Inc. (ITMN) in 2010 as well as trades in Weight Watchers International Inc. (WTW) last year are being investigated by the U.S., a person familiar with the matter said.
...
SAC bought 1.9 million shares of InterMune in the first quarter of 2010, after holding none in the prior two quarters, and held 10,983 shares at the end of the second quarter of 2010, according to data compiled by Bloomberg.
InterMune’s stock soared in the first week of March after the drugmaker’s experimental medicine for a deadly lung disease was reviewed more favorably by U.S. regulators than analysts had expected. Two months later, the stock slumped after the company’s application for a potential $1-billion-a-year lung treatment was rejected by regulators.
Compare with this Zero Hedge extract [7]from over two years ago:
The plot thickens when we take a comparable look at Intermune.
AS 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.
[8]
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 the favorable press release from March 9 [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 [10] (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).
You are welcome, FBI. And just to make your job even easier, here is which other companies we identified over two years ago as smoking guns in the holy grail to finally get a certain someone's head on the metaphorical stick:
Cyberonics is the first company mentioned in the brief narrative above, one which allegedly SAC first shorted, then went long, at some time going all the way back to 2004-5.
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:
[11]
[12]
What 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 [13] 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 [14]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).
...
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 [15], which led to a trouncing of the stock.
Yet 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...
[16]
... 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.
And, finally, also look at Respironics and Renovis as well. For the full analysis, read here [17].
You, too, are welcome SEC.
Of course, it remains to be seen if the SEC, whose outgoing Chairman Schapiro, was the epitome of clueless coopted incompetence will do anything with this data, or if her alleged replacement Sallie Crawcheck, who will most certainly convert the SEC into an organization decidedly after only Wall Street's pocketbook, and certainly not justice or the truth, will do much if anything with this information now. They certainly did nothing with it two years ago.