Steven A. Cohen, the billionaire founder of S.A.C. Capital Advisors, LLC, has settled SEC charges that he failed reasonably to supervise Matthew Martoma, a portfolio manager who engaged in insider trading in shares of two pharmaceutical companies. The SEC charged that “Cohen received information that should have caused him to take prompt action to determine whether an employee under his supervision was engaged in unlawful conduct and to prevent violations of the federal securities laws. Cohen failed to take reasonable steps to investigate and prevent such a violation.” See “SEC Charges Steven A. Cohen With Failing to Supervise Employees Who Allegedly Engaged in Insider Trading” (Jul. 25, 2013). This article summarizes the terms of the settlement and the related SEC no-action letter regarding the ability of entities beneficially owned by Cohen and his funds to continue to rely on Rule 506(b) or (c) of Regulation D for private placements despite the “bad actor” rule set forth in Rule 506(d). See also “Defense White Paper Refutes SEC’s Allegations That Steven A. Cohen Failed to Supervise Employees Accused of Insider Trading and Provides a Behind-the-Scenes Look at SAC Capital’s Compliance Program and Culture” (Jul. 25, 2013).
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