As the Galleon inquiry expands, we have been fairly certain that the dominoes would start falling. Whether or not one of these dominoes would be the fund that single-handedly defined the term "information arbitrage" is still anyone's guess, although as the WSJ reports today, a former employer of Stevie Cohen's until the year 2004, Richard Grodin, has received a subpoena for his trading records as part of the Galleon case. It appears that upon learning of the Feds sniffing around his 500 Fifth Avenue office, Mr. Grodin promptly shut his current hedge fund and got out of dodge.
Richard Grodin is (or rather was) head of SEC unregistered Quadrum Capital Management, which as Dealbreaker disclosed a few days ago was forced to promptly shut down, meaning that Mr. Grodin was well aware the allegations were about to start flying, and that judging by the haste of the shut down, there is much more to the story than mere allegations. Attempts by Zero Hedge to reach any of its principals listed below have so far been futile. One person who is sure to be saddened by this is Doug Leggate, Citi's former #2 oil analyst, who in the summer of 2008 left Citigroup to join the now defunct fund.
The common link in the case appears to be cooperating witness Choo Beng Lee, who worked with Grodin at another SAC-sponsored hedge fund called Stratix which was closed in 2007.
From the WSJ:
Mr. Cohen runs SAC's main hedge fund and has invested money on behalf of his investors as well as his own money in funds run by former SAC managers. Over the years, Mr. Grodin has worked as a portfolio manager for SAC, as well as a division that invested SAC investors' money. He also ran a separate independent fund in which Mr. Cohen was an investor.
It is unclear which specific trades of Mr. Grodin's and their timing are being sought. The 6-foot-5 Mr. Grodin, 40 years old, took time away from his hedge fund this summer to play in a basketball tournament in Israel, a person familiar with the matter says.
Mr. Grodin and Choo Beng Lee, who has been identified as a cooperating witness in the government's case, have ties that stretch back to the late 1990s when the two worked for SAC, people familiar with the matter say. Mr. Grodin was a portfolio manager and Mr. Lee was an analyst that worked with him.
Several years later, Mr. Grodin broke away from the main SAC fund to work at Sigma, an SAC division, where Mr. Grodin continued to work as a portfolio manager and Mr. Lee continued to serve as an analyst for him. Mr. Lee's lawyer declined to comment.
Mr. Grodin later launched a hedge-fund named Stratix outside of SAC's sphere, in which Mr. Cohen was an investor. At Stratix, Mr. Lee worked for Mr. Grodin for several years, according to people familiar with the matter. Mr. Grodin closed Stratix in December 2007.
How many more people will be uncovered as a result of this sting operation is unclear, although our bet is that much more than just 10 will ultimately be implicated. And just as all roads lead to Rome, all cases of insider trading ultimately are the result of some form of information arbitrage. Whether a publicity shy Mr. Cohen will have an official statement regarding his relationship with Grodin is as of yet unknown. Then again ole' blue eyes, who enjoys closing his multi-billion dollar fund flat at the close of each trading day, may just have bigger problems on his hands these days.