SAC Gets Added Scrutiny as U.S. Probes InterMune Trading

By Saijel Kishan & Patricia Hurtado - Dec 10, 2012 12:00 AM ET

SAC Capital Advisors LP, the $14 billion hedge fund run by Steven A. Cohen, is under mounting scrutiny as the U.S. investigates its trading in InterMune Inc. (ITMN) and Weight Watchers International Inc. (WTW), according to a person with knowledge of the matter.

The U.S. Securities and Exchange Commission and the Federal Bureau of Investigation are looking into the trades, said the person, who asked not to be identified because the matter wasn’t public.

News of the probe comes after SAC Capital told clients on Nov. 28 that it had received a so-called Wells notice from the SEC related to Mathew Martoma, a former portfolio manager who was criminally charged on Nov. 20 for insider trading in two other stocks. The Wells notice, a warning that the SEC is prepared to sue, cited fraud and control-person liability related to the unit that employed Martoma, a person familiar with the matter said at the time.

SAC Captial Advisors LP founder Steven Cohen said last year that he promoted four traders in 2010 as industry-group heads, including technology, to help run the Cohen Account. Photographer: Scott Eells/Bloomberg

Jonathan Gasthalter, a spokesman for Stamford, Connecticut- based SAC Capital, said that the firm wasn’t aware of any investigation involving trades of Weight Watchers or InterMune. He declined to comment on whether the Wells notice, which the company received Nov. 28, cited the two companies.

The SEC sends a Wells notice to a company or an individual after its staff has determined that sufficient wrongdoing has occurred to warrant civil claims being filed. The notice gives the recipient a chance to try to dissuade the SEC from taking action. In some cases, the SEC has decided to refrain from filing a complaint after sending a Wells notice.

SAC’s Shah

The government is looking at trades that SAC Capital made in Brisbane, California-based InterMune in the first half of 2010, said the person with knowledge of the probe. Some of those InterMune transactions were handled by Nikej Shah, the person familiar said. Shah, a former SAC portfolio manager, declined to comment on the probe.

Jerika Richardson, a spokeswoman for Manhattan U.S. Attorney Preet Bharara, and John Nestor, a spokesman for the U.S. Securities and Exchange Commission, declined to comment on the case. Jim Margolin, a spokesman for the FBI’s New York office, declined to comment on the probes.

SAC bought 1.9 million shares of InterMune in the first quarter of 2010, after holding none in the prior two quarters, and held 10,983 shares at the end of the second quarter of 2010, according to data compiled by Bloomberg.

Stock Climbs

InterMune’s stock soared in the first week of March after the drugmaker’s experimental medicine for a deadly lung disease was reviewed more favorably by U.S. regulators than analysts had expected. Two months later, the stock slumped after the company’s application for a potential $1 billion-a-year lung treatment was rejected by regulators.

Trading records also show SAC Capital held Weight Watchers during a period when the price doubled. The firm held 2.1 million shares at the end of the first quarter of 2011 compared with 7,951 shares in the previous quarter, according to data compiled by Bloomberg. Weight Watchers, based in New York, surged in February 2011 after forecasting full-year earnings that beat analyst estimates.

The hedge fund cut its holdings in the second quarter of 2011, holding 77,857 shares as of June 30, 2011. The stock slumped in the first week of August after the firm increased spending on advertising and technology during the second quarter.

Neither SAC Capital nor Cohen has been accused of any wrongdoing in relation to InterMune or Weight Watchers. Kristi Widmar, a Weight Watchers spokeswoman, said the company hadn’t been contacted about the investigation and declined to comment further. A spokesman for InterMune declined to comment on the investigation.

Elan, Wyeth

Last month, Martoma was charged with insider trading for using nonpublic information to buy and sell the stocks of drugmakers Elan Corp. (ELN) and Wyeth LLC, earning $276 million for the fund.

SAC Capital’s owner sold the stocks after speaking with Martoma, according to prosecutors and an SEC complaint, which was the first time they had linked him to trades at the center of an insider case. Another person familiar with the matter said Cohen is the person identified in the criminal complaint as “Hedge Fund Owner” and in the SEC’s suit as “Investment Advisor A.”

Cohen hasn’t been charged with a crime in the Martoma case and hasn’t been sued by the SEC. The agency filed its suit against Martoma and CR Intrinsic Investors LLC, the SAC Capital unit where he worked. Martoma’s lawyer, Charles Stillman, has said he expects his client to be vindicated.

To contact the reporters on this story: Saijel Kishan in New York at skishan@bloomberg.net; Patricia Hurtado in New York at pathurtado@bloomberg.net

To contact the editors responsible for this story: Christian Baumgaertel atcbaumgaertel@bloomberg.net; Michael Hytha at mhytha@bloomberg.net