According to people briefed on the case, four senior executives at SAC capital advisors received subpoenas to testify before the grand jury as part of the government’s investigation into insider trading at the firm. The subpoenas were issued last week along with the one served on the owner of SAC, Steven A. Cohen. Thomas Conheeney, the firm’s president; Solomon Kumin, the firm’s chief operating officer; Steven Kessler, chief compliance officer; and Philip Villhauer, head of trading are the executives subpoenaed in the inquiry.
This new round of subpoenas also included requests for additional documents in trading records, and angered officials at SAC who had been fully cooperating in the multi-year inquiry. The firm decided to take a more combative stance and informed its investors that it was no longer fully cooperating with the investigation on May 17, because of the government’s new set of demands.
Cohen’s attorneys advised him not to testify before the grand jury and subject himself to unlimited questioning. According to lawyers briefed on the case, Cohen has not been accused of any wrongdoing, but is expected to assert his constitutional right against self-incrimination. In SAC spokesman, Jonathan Gasthalter said, “We don’t think it is unusual that in this investigation the government would interview our senior executives about how the firm operates.”
Prosecutors have been investigating the firm’s trading practices for six years. The investigation has resulted in four guilty pleas from former SAC traders. Another five former employees have also been tied to insider trading while at the firm. SAC agreed to pay a $616 million penalty to resolve two civil insider trading actions related to questionable trading in pharmaceutical and technology stocks earlier this year.
It appears that prosecutors are stepping up their efforts to build a case against the firm. However, Cohen and the other four executives are most likely not the targets of the investigation, since Justice Department guidelines discourage prosecutors from seeking testimony from individuals they are seeking to charge.
The requested testimony could be an effort to potentially charge the firm in connection with drug makers Elan and Wyeth trades made in July 2008. Matthew Martoma, a former portfolio manager at SAC has already been criminally charged for helping the firm gain profits and avoid losses of $276 million for corrupting a Dr. into giving him secret data about clinical trials that were being conducted by the two companies.
According to court filings, Villhauer and Cohan executed the trades in question. Neither of them have been accused of possessing the confidential information when making the trades nor have they been charged with any wrongdoing.
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