The Biggest Insider Traders of All Time
The company has recorded an almost unparalleled performance over the years, surpassing 30% per year on average. In fact, so great have been the returns, that SAC has been able to charge investors an unheard of 50% on those profits — way above the usual 20% that is the industry norm. Lately, however, the company has been in the spotlight, not due to the exceptional returns, but as a consequence of the SEC accusing several former company employees of insider trading and in the process casting doubt over the company’s practices used to achieve such performance.
“In fact, so great have been the returns, that SAC has been able to charge investors an unheard of 50% on those profits way above the usual 20% that is the industry norm.” Prosecutors have so far implicated five former SAC employees in insider trading and three have already buckled and confessed. Additionally, three former SAC traders have been charged with illegal trading and two have also pleaded guilty. Prosecutors have been trying, so far in vain, to connect Steven Cohen — the firm’s eponymous boss, with all of these insider trading scandals. We have covered this extensively on our blog. At the epicentre of all the cases are the Jon Horvath, Michael Steinberg and Matthew Martoma cases. Jon Horvath, a former trader at SAC’s Sigma division, passed insider information to his supervisor Michael Steinberg about Dell and Nvidia. Prosecutors claimed the company profited by a lowly $1 million in the case of Dell and just $0.4 million with NVIDIA. Jon Horvath also confessed that the company used insider information to trade in Ingram Micro, Seagate, and Sun Microsystems and, according to SEC filings, SAC had traded heavily in all those companies.
Matthew Martoma, another former SAC employee, was accused of trading on inside information that he received in two pharmaceuticals companies — Elan and Wyeth. Martoma received non-public information regarding the development of an Alzheimer’s drug by the companies Elan and Wyeth. A doctor he contacted told him about the better than expected developments in clinical trials from the drugs being developed and Martoma led SAC to buy a position size of some $700 million shares in those two companies. In July 2008, the same doctor told Mr. Martoma that some side effects has been identified during the clinical trials and which prompted SAC to sell its full position and, stupidly, to even reverse it into a short one. When the results from the trials were released to the public, the shares in Elan and Wyeth plunged 42% and 12% respectively. Total profits from this pick had been evaluated at an astounding $276 million for SAC, with Martoma earning more than $9 million in compensation benefits that year. The case is still in court and it is interesting to note that even though Martoma is no longer with the company, SAC is paying his costly legal bills.
Additional Cases The cases we have included here are just a small sample of the insider trading scandals the SEC has brought to justice. Other notable cases are that of Martha Stewart, the US based self-styled ‘lifestyle guru’, who avoided a relatively measly $46,000 in losses in the stock of ImClone Systems by trading on privileged inside information. Such a figure is nothing when compared with the monies involved with the stories relayed here, but it was given huge media coverage as a consequence of Stewart’s celebrity status. The SEC were likely using her as an example. Other cases are legion, and although we have concentrated on the US here, there are many examples within the UK. We applaud the crackdown by the authorities here at SBM and only wish the FCA would go as far as the SEC in the pursuit of these criminals that pollute the integrity of our public markets and load the dice even further against honest retail investors.
May 2013
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