FINRA Cites SAC Capital Advisors for Suspicious Trading

What is it going to take for the SEC to respond accordingly to tips of insider trading and hedge-fund fraud? When initial suspicion of Bernie Madoff’s widespread Ponzi scheme was discovered by FINRA, the SEC was slow to act on it. Now, multiple referrals from FINRA of suspicious trading at the hedge-fund firm, SAC Capital Advisors LP, have emerged and the SEC is hesitant to take further action once again. Below is the article from the Wall Street Journal regarding this issue.

Referrals on SAC Disclosed By JEAN EAGLESHAM June 16th, 2011
The Securities and Exchange Commission has received 65 referrals of suspicious trading at hedge-fund firm SAC Capital Advisors LP over the last decade, or 46 more than previously disclosed, according to Sen. Charles Grassley.

The Iowa Republican disclosed the additional referrals as part of a renewed demand that the SEC disclose how it handled the information. People familiar with the situation said the referrals include trading in the options market and on the New York Stock Exchange.

Other hedge funds and individuals are named in the documents from the Financial Industry Regulatory Authority, a self-policing body for Wall Street, these people said.

Sen. Grassley, the top Republican on the Senate Judiciary Committee, said “many” of the referrals involved trades older than the five-year legal time limit on bringing civil actions for insider trading. The older trades “would not appear to trigger any concerns regarding ongoing investigations,” he said in a letter to SEC Chairman Mary Schapiro on Wednesday.

SAC, one of the most successful hedge-fund firms in the U.S., said it was “not surprised” that it has been the subject of 65 referrals since 2000. “Referrals by Finra are the result of surveillance of market-wide trading activity and they are neither findings nor allegations of insider trading,” a spokesman for SAC said in a statement.

“Given the size of our firm, our active investment style, and the period covered, we are not surprised by the number of referrals. SAC has always cooperated fully with regulators and will continue to do so,” the spokesman said.

Spokeswomen for the SEC and Finra declined to comment.

Last week, the SEC rejected a request by Sen. Grassley about how it responded to the first 19 referrals, citing confidentiality. SEC officials are concerned that disclosing the requested information could jeopardize ongoing investigations into SAC, according to people familiar with the matter.

Sen. Grassley has characterized the agency’s treatment of the SAC trades as a test of how much it has overhauled enforcement practices following its failure to detect the Bernard Madoff fraud.

“Bernie Madoff is gone but not forgotten,” Sen. Grassley said in a statement Wednesday. “The SEC is under scrutiny right now for good reason.” SEC officials are angry at the lawmaker’s actions, saying privately that insider trading is one of the agency’s strongest areas of enforcement activity.

Robert Khuzami, the SEC director of enforcement, said in a letter to Sen. Grassley last week that the agency was “in a period of historic insider trading enforcement.”

The SEC brought 53 insider trading cases against 138 individual and firms in the fiscal year that ended in September 2010, up 43% from a year earlier, Mr. Khuzami said.

Contact Information