## Facts

- Steven A. Cohen founded, owned, and controlled S.A.C.-branded hedge fund advisers managing portfolios exceeding $15 billion and oversaw portfolio managers’ trading.
- The SEC instituted an administrative proceeding under the Investment Advisers Act alleging Cohen failed reasonably to supervise senior employees who engaged in insider trading.
- The allegations centered on 2008 trading: a portfolio manager obtained material nonpublic information about publicly traded companies and communicated information to Cohen indicating potential access to inside information.
- Despite those indications, Cohen allegedly did not take reasonable steps to investigate or prevent unlawful trading.
- The trading generated approximately $275 million in profits and avoided losses for the hedge funds.
- The administrative proceeding was stayed during related criminal prosecutions involving SAC personnel and entities.
- The matter resolved by settlement: Cohen consented to findings and sanctions without admitting or denying them.

## Issues

1. Whether Cohen failed reasonably to supervise a supervised person with a view to preventing violations of Exchange Act § 10(b) and Rule 10b-5, as actionable under Advisers Act supervisory provisions.
2. What remedial sanctions and undertakings were appropriate in the public interest for the alleged supervisory failure in connection with insider trading.

## Decision

- The SEC accepted Cohen’s offer of settlement and entered an order making findings and imposing remedial sanctions.
- The SEC found (on consent, without admission or denial) that Cohen failed reasonably to supervise a senior employee who engaged in insider trading, resulting in approximately $275 million in profits and avoided losses.
- The SEC barred Cohen from association in a supervisory capacity with any broker, dealer, or investment adviser until December 31, 2017.
- The SEC required Cohen to retain an independent consultant to review and recommend enhancements to policies, procedures, and supervisory mechanisms to detect and deter insider trading; Cohen was required to adopt the recommendations and retain a monitor through the bar period.
- The order did not impose a personal civil monetary penalty on Cohen.

## Legal Principles

- Under the Advisers Act, a supervisor may be sanctioned when a supervised person violates federal securities laws and the supervisor fails reasonably to supervise with a view to preventing those violations.
- Supervisory liability may be based on a failure to take prompt, reasonable investigative and preventive steps after receiving indications of potential misconduct, including communications that present red flags of insider trading.
- Remedial sanctions in SEC administrative proceedings may include time-limited supervisory bars and compliance-related undertakings (e.g., independent consultant review and monitoring) tailored to investor protection and deterrence.
- Settlement orders may include findings and sanctions entered on a “without admitting or denying” basis.

## Conclusion

The SEC resolved the proceeding by finding, on consent, that Cohen failed reasonably to supervise insider trading by a senior employee and imposed a supervisory-capacity bar through December 31, 2017, plus independent compliance-review and monitoring undertakings, without a personal monetary penalty.


In re Steven A. Cohen, Admin. Proc. File No. 3-15382 (S.E.C. Jan. 8, 2016)