SAC Retreats in London as US Pushes for Tough Settlement Terms

Wednesday, 23 Oct 2013 07:10 AM

 

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Two executives of SAC Capital Advisors LP went to the firm’s London offices across from St. Paul’s Cathedral to deliver some unwelcome news.

Tom Conheeney, SAC’s president, and Sol Kumin, the chief operating officer, told their more than 50 employees there they were shutting the U.K. operation by the end of the year. Steven Cohen’s $14 billion hedge-fund firm, which had previously assured staff that it planned to continue business as usual after U.S. prosecutors charged it with insider trading, would have to scale back, they said.

“It has become clear to us that the outcome the government is demanding is likely to have a greater than first anticipated impact on the firm,” Conheeney wrote in a memo that was sent to employees. “We have concluded that we must operate as a simpler firm and reduce our capital allocations.”

Negotiations between the government and SAC have been going on since at least mid-September, according to people familiar with the talks, yet the move to shut its London unit, one of its largest offices outside the U.S., is the first public acknowledgment that SAC expects to manage a lot less money in the coming months. The firm, indicted by a U.S. grand jury in July on allegations that it engaged in unprecedented illegal trading for more than a decade, also cut six investing jobs in the U.S. this week, Conheeney said.

SAC’s Fine

Virtually all clients, who accounted for about $6 billion in assets at the beginning of this year, have asked to withdraw their capital, which will be returned by year-end. Cohen, 57, is likely to be barred from managing other people’s money and pay a fine of $1.8 billion, people with knowledge of the talks said this month. That payment to the government will probably come out of the about $9 billion Cohen has invested in the 21-year-old firm.

“It seems that the firm is making changes that are required either as part of a settlement or by its changing business plan,” said Ron Geffner, a partner at Sadis & Goldberg in New York who was previously an enforcement lawyer with the SEC.

Jonathan Gasthalter, a spokesman for SAC, declined to comment on the closing of the London office and the U.S. job cuts. At the time of the indictment, SAC said it never encouraged, promoted or tolerated illegal trading.

Government Charges

SAC is accused of encouraging its traders to obtain information from company insiders while ignoring indications it was illegal. Six former SAC employees have pleaded guilty to trading on inside information, and two more are scheduled to go on trial. The alleged illicit trading, which involved more than 20 companies and went back as far as 1999, helped reap hundreds of millions of dollars in illicit profits, the U.S. said.

SAC employees have been sending out resumes to hedge-fund firms and recruiters since the indictment, hoping to land jobs next year when they expect the firm will need far fewer employees. As of Sept. 20, SAC employed 950 people globally, according to a regulatory filing, about 50 fewer than it did in April. About 400 of those employees were investment professionals, about the same as in April, according to filings.

Conheeney said in the memo that the firm doesn’t “anticipate any further material changes in investment personnel headcount.” SAC has offices in Hong Kong, Tokyo, Singapore, New York and Boston in addition to its headquarters in Stamford, Connecticut, according to a regulatory filing.

London Partners

SAC had 18 partners in its London-based SAC Global Investors LLP at the end of 2012, according to a U.K. filing. The unit’s profit almost tripled last year to 31 million pounds ($50 million), which was intended to be distributed to its partners, the filing shows.

Beginning in 2000, SAC managed money in Europe through a company called Walter Capital Management LLP, founded by SAC alumni Rich Walter. It bought a stake in the business in 2004 and in 2008 renamed the firm, U.K. regulatory filings show.

The office is now run by Michael Ferrucci, a former equity sales person at Deutsche Bank AG, and employs money managers who primarily trade stocks of companies based in Europe, Eastern Europe and Russia, according to a person with direct knowledge of the situation.

After SAC suffered losses during the 2008 financial crisis, it cut the number of traders based in London to four from 14, said the person, who asked not to be identified because the firm is private.

SAC rebuilt the London office when markets rebounded after the crisis and it became profitable again, hiring money managers including Lia Forcina and her analyst husband Giovanni Rubino from hedge-fund firm Fenician Capital Management LLP, the person said.

Others who joined included Robert Harris from UBS O’Connor and Muhammed Yesilhark from York Capital Management LP.

BlueCrest Hires

Forcina, 39, who oversaw more than $700 million, quit this month to join BlueCrest Capital Management LLP, three people with knowledge of the matter said last week. Other traders who’ve left SAC this year have also joined BlueCrest and Millennium Management LLC.

SAC didn’t disclose the names of the U.S. money managers who lost their jobs.

Cohen increased 2014 bonuses by 3.5 percentage points in an effort to retain employees, a person with knowledge of the matter said last month. SAC money managers are typically paid an annual bonus of 15 percent to 25 percent of the profits they generate from their investments.

© Copyright 2014 Bloomberg News. All rights reserved.

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