No Smoke without Fire – A Denouement

FPM insiders are somewhat surprised at the impending final resolution or clarification of the 'SAC-saga'. A multi-year investigation led by the US Department of Justice which is imminently unfolding – with the next fixed date November 18, being the commencement of criminal trial against senior portfolio manager at SAC Capital Michael Steinberg. The climaxing of the largest investigation and prosecution into insider trading in the United States may tantamount to a mere null and void result! Are Steven Cohen and SAC Capital going to receive a ‘get-out-of-jail’ card? Really, we are always aghast at the masquerading theatrics without substance - and we’re not referring to Hollywood films! Read our full “No Smoke Without Fire” to see exactly how aghast.

The critical point from the recent financial press about SAC Capital, is that the web of securities fraud manager may evade criminal conviction. Simply by letting money talk, that is by entering negotiations for a settlement of the prosecution’s case. As was reported in the Reuters noise on September 25^th : “SAC Capital and prosecutors have since opened preliminary settlement talks in an attempt to resolve the criminal indictment...”. (Click below url link Cohen's SAC Capital up 13 pct for year for full Reuters story. A simple thinking individual with pursed lips may nod his head acceptingly and claim nothing tremendously new or interesting about an out-of-court financial settlements as regards financial moguls, especially in aftermath of the US housing-led financial crisis malfeasance. Malfeasance or misdemeanours, which FPM repeatedly likens to the proverbial tip-of-the-iceberg; mainstream reported financial wrongdoings are only the visible tiny portion and not reflecting the unseen gigantic portion submerged.

SAC which was charged with separate criminal and civil charges, at the 11^th-hour on 19^th July 2013 before the 5-year statute of limitation kicked-in, seems now to be offering one final ‘global’ settlement for insider-trading case related to SAC to end.

Presumably such a final settlement is intended for current outstanding cases and to prevent any future prosecution of Mr Cohen himself. Remember it was only on 15^th March this year that Mr Cohen personally forked out a record total $616 mn to settle two separate civil cases related to SAC sub-fund PMs.  Mathew Martoma of CR Intrinsic and Jon Horvath of Sigma Capital cases settled for $602 mn and $14 mn respectively. Mr Martoma’s criminal indictment case has been rescheduled from November to January 2014. In our restricted report ‘No Smoke Without Fire’, FPM speculate on the likelihood of this close associate of Mr Cohen squealing before the grand jury or proffering evidence in exchange for leniency in his sentencing. Alternatively, how much personal pay-off may be needed for Mr Martoma to accept prison time to fit the crime? Prison time may be sore point for ‘cute’ looking Mr Martoma! Of course while

While Mr Cohen himself has been implicated in past and pending US criminal cases of insider trading, he has not been directly named in criminal indictment documents or has ever been charged. FPM skews the old adage into “The bigger they are the harder they are to fell, especially where money is concerned.” In “No Smoke Without Fire” we mention other hedge fund luminaries and executives that have had the grace of political and financial clout and connections to avoid conviction and prison sentence. Among others we identify those potentially having engaged in insider trading. Such as hedge found founder billionaire Arthur Samberg of Pequot Capital Management and prominent Wall Street executive John Mack, who also chaired Morgan Stanley.

FPM’s restricted circulation of “No Smore Without Fire”, together with extracts and supplements published on this blog, have been successful in conveying the negative reputation risk of being invested with an asset manager in ongoing insider trading investigations. Via word-in-your-ear enquiries with Blackstone Group affiliates we believe we were indicatively influential in the private equity giant redeeming investor money from SAC Capital. Following our active resistance modus operandi, FPM associated Blackstone’s alpha-at-any-cost savvy and / or slack due diligence in being long-invested and vehemently committed to Mr Cohen, amidst multi-year investigation by prosecuting federal authorities. In most scenarios most investors faced with reputation risk would reasonably be expected redeem investments first then ask questions later. We think the fall-out from even a financial settlement without acknowledgement of culpability to the SACs saga will indelibly tarnish Blackstone’s reputation in hedge fund investments. Not to mention irrevocably damaged reputation to other less high profile partners of SAC, who have vocally and publicly allied themselves. We know that kowtowers and sycophants to the 117^th richest man in Forbes ranking lists inevitably exist, but FPM in naming and shaming propound our reputation risk thesis by highlighting one such specimen. Anthony Scaramucci, managing partner of SkyBridge Capital, a fund-of-funds manager, has been particularly unabashed in supporting the monied-class of Mr Cohen. On the day of SAC’s federal indictment on criminal charges of insider trading, Mr Scaramucci appeared on CNBC's "Halftime Report" to lend his smarmy affiliation to SAC – see this transcript:

"So I think right now I think we just have to feel bad for the employees there and for the families associated with this. I have said long ago that if they have a case and it's a substantial one, let's bring it. Obviously, the presumption is still on innocence both for the firm and for Steve. That's the way our criminal justice system works. But the government has that case. I hope Steve and his team will get the opportunity to say their side of the story as well. But as it relates to public policy and things like that, fraud is a terrible thing, and I hope to God that they will be innocent, but if they're not, obviously we'll do what's prudent for our investors as everyone else would."

And watch this video link to compare Mr Scaramucci’s - affectionately known as the "The Mooch" - excitement and enthusiasm about vehemently supporting SACs in November 2012 as CNBC discuss: Will SAC Face Redemptions?

Of course FPM filches the above assailant points buried in obfuscating headline stories. This time the misleading Reuters noise mentioned above had headline about SAC’s year-to-date performance, see Cohen's SAC Capital up 13 pct for year -source. The dumbly published story under mainstream financial media Reuters, with Matthew Goldstein as ‘jobsworth’ lead-writer, is the kind of pandering journalism that is tantamount to mere paid-for financial propaganda. Of course at the centre of such tripe is SAC’s PR-firm Sard Verbinnen & Co and lead-spokesman Jonathan Gasthalter. How many unofficial and official lunches have Reuters had at the PR-firm’s expense, we rhetorically ask! While cognisant of motto “No such thing as a free lunch!”. So the story is not just ‘dumbly’ edited but connivingly intended, one may reasonably suspect. This kind of concealed reporting of the key facts assuages financial herd that SAC’s multi-year case is proceeding and business as usual at the firm. Starkly, FPM point out that no criminal charge has been brought to the door of the man presiding over the web of fraud, Mr Steven Cohen. FPM is not alleging fraud at SAC or by Mr Cohen but merely explosively enunciating the July 19^th, 2013 criminal indictment against SAC Capital, which states “…insider trading that was substantial, pervasive and on a scale without known precedent in the hedge fund industry”. And if that’s thrown out in case closure as unsubstantiated libellous verbiage, then we corroborate with US Manhattan Attorney Preet Bharara’s , recital describing SAC as “a veritable magnet for market cheaters”. FPM network would not believe Mr Bharara’s personality and character is given to hyperbolic statements.