Update: Deep Capture indicates that they have some emails proving insider trading, so any attempts to delete files/emails by SAC and other firms might not be any good, since  the files just happen to implicate said firms in…insider trading.

Ah, the web we weave…etc. etc.

Terry Buhl at Hedge Fund-Implode.com reports that residents of hedgefund land are going into SAC-remote mode:

“Funds like Blue Ridge, Greenlight, Third Point, Glenview, and Maverick are cutting back on any contact with King Stevie. When we asked major players such as Jim Chanos and others if they’ve been pinging Stevie about a trade lately, you’ll get a very defensive `no.’ Why? Because word on the street is they all think FBI special agent BJ Kang, who is now dogging Stevie, has the goods to deliver the hammer soon in the form of  an indictment or arrest for insider trading.

Extra measures are being taken to hire data-miners to comb through any and all emails firms and their trading consultants ever sent to anyone at SAC in an attempt to erase them from internet memory. According to traders we talked with, they are even going as far as getting out of trades that might look similar to any of Stevie’s. So it looks like running due diligence on your `SAC risk’ to prove to your investors that you’re clean – like Larry Robbins of Glenview capital just did – is the new `killing it’.”

My Comment:

Just to recap.

*Steven Cohen is the multibillionaire chief of legendary hedge-fund SAC, which sits at the top of the heap among funds. Cohen, famously reclusive, is said to have had only one bad year of trading.

Now he´s having a bad time from the  FBI investigation of the insider-trading case against New York-based hedge-fund Galleon Group, which is proving to have teeth in it.

SAC has a history of elbows-and-knees-style trading practices, according to this 2003 Business Week article.

*The head of Galleon (which once managed $7 billion in assets), Sri Lanka-born Raj Rajaratnam was arrested, along with five others, on October 16  in a $17 million dollar insider-trading case brought by federal prosecutors and the FBI.

(The numbers vary: it´s $20.8 million, according to a later WSJ report, and $25 million in a NY Daily report)

*The case was unusual in that FBI agent B. J. Kang used wire-tapping for the investigation (normally used only in drug-related cases).

*The Galleon arrests were quickly followed by other arrests of  traders, lawyers and hedge-fund managers on November 5, including one Zvi Goffer, who, as the brains of the insider network, was referred to as “the octopussy.” This brought the total number of arrests in the case to 14 (Correction on 12/29: I read 20 elsewhere) and added another $20 million to the fraud, already the biggest in Wall Street history since the days of Ivan Boeksy in the 1980s.

*On December 16, Steven Cohen´s ex-wife Patricia accused him of hiding millions from her and of insider trading in a 1986 merger when Cohen was a young trader at now-defunct broker, Gruntal.

*Indicted on December 17 (December 15, according to one source) by a Federal grand jury  on multiple criminal counts of insider trading and securities fraud,  Rajaratnam  pleaded not guilty. Many of the charges against him carry upto 20 year prison sentences. The trial is expected to take place in the summer of 2010.

*The broker Gruntal has an interesting history, in that it seems to be the place where several of the biggest names on Wall Street (aka some of the most crooked players) crossed paths:

Bernie Madoff, Ezra Merkel (Madoff fund associate), Ivan Boesky (infamous 1980s trader), Michael Milken (junk bond innovator), Carl Icahn (famed and feared corporate raider), Steven Feinberg, ,…and yes, Steven Cohen:

From Deep Capture:

“Another of Madoff’s most important “feeders” was J. Ezra Merkin, who managed the Ariel Fund, which seems to have been designed specifically to raise money for Madoff’s fraudulent investment business. In this regard, the New York attorney general has described “Merkin’s deceit, recklessness, and breaches of fiduciary duty…”

While Merkin was “deceitfully” feeding the Madoff Ponzi, he was also a co-owner, along with Steve Feinberg, of Cerberus Capital Management, a fund named after the mythological three-headed dog that guards the gates of Hell.

Previously, Feinberg was a top trader for Michael Milken at Drexel Burnham Lambert. After Drexel, Mr. Feinberg moved (on Milken’s recommendation) to a brokerage called Gruntal & Company.”

Gruntal owed its existence to the generous junk bond finance that its parent company, the Home Group, received from Michael Milken. Its options department was founded by Carl Icahn, who later became a “prominent” billionaire owing to the junk bond finance that he received from Michael Milken.

When Icahn left Gruntal, he was replaced by a Milken crony named Ron Aizer, who proceeded, on the recommendation of Milken, to hire two traders.

The first trader hired by Aizer was, according to a reliable source, investigated by the SEC for trading on inside information that he received from Milken’s operation at Drexel Burnham Lambert. This trader is now a “prominent” billionaire and the manager of a well-known hedge fund. The second trader hired by Aizer is now also a “prominent” hedge fund manager, though he is not quite a billionaire. Both of these traders play important roles in the story of Dendreon. Carl Icahn, the founder of Gruntal’s options department, has a cameo role, too.”

There is more, of course, much more to the story, and many more names, including Michael Steinhardt, Marc Rich who was pardoned by Clinton for tax evasion and dealing with Iran against US law, and many others, but that would make this post far too long, so I will send you instead  to this page.…and this...for now.

(Of course, we could ask why hedge-funds with an edge get to be prosecuted, while governments with the biggest edge of all don´t  – but there, we won´t spoil the fun).