Attorneys for hedge-fund manager Steven A. Cohen are disputing federal civil charges that he failed to prevent insider trading at SAC Capital Advisors, saying he didn't read an email at the center of the allegations.
Cohen's lawyers call the Securities and Exchange Commission's charges "unfounded" in a paper sent Monday to employees of the firm.
The SEC said Friday that two of Cohen's portfolio managers gave him information in 2008 that suggested they had access to inside data. Cohen, 57, faces possible fines and could be barred from managing investor funds. He has until Aug. 8 to formally respond to the allegations.
His lawyers say he "had every reason to believe" that one of the managers used only public information and that he didn't read the email from the other manager.
Stamford, Conn.-based SAC Capital, which until recently managed more than $15 billion in assets, is at the center of the biggest insider trading fraud cases in history.
The SEC says Cohen failed to prevent the two managers from illegally reaping profits and avoiding losses of more than $275 million. Rather than raise any red flags, Cohen praised one of the managers and rewarded the other with a $9 million bonus, the SEC said.
Part of the case hinges on an August 2008 email that included advance information on Dell Inc.'s quarterly earnings. The SEC says it was sent to one of the two SAC portfolio managers and forwarded to Cohen. Minutes after it was forwarded, Cohen began selling his $11 million holdings of Dell stock, the SEC alleges.
Cohen's lawyers say in the paper that he didn't read the email and wasn't told about it. Cohen received hundreds of emails a day and he didn't read most of them, they say.
They say that Cohen decided to sell his Dell stock for "unquestionably legitimate reasons." That was because he became aware that a portfolio manager at an SAC affiliate, who had originally recommended that Cohen buy Dell stock, was selling a portion of his Dell stock.
The lawyers also note that the email is based on a second-hand interpretation of the information and doesn't identify the source. So even if Cohen had read it, he wouldn't have known it contained confidential information, the say.
"Steve Cohen did nothing wrong, and any fair review of the evidence will show that the SEC's charges are unfounded," his lawyers said.
The case will be heard on Aug. 26 before an administrative law judge at the SEC.