Cohen Declines to Testify in SAC Insider Case

Steven A. Cohen has declined to testify before a grand jury, raising the stakes in the government’s long-running insider trading investigation into his giant hedge fund, SAC Capital Advisors.

Rather than subject Mr. Cohen to wide-ranging questions from prosecutors in a grand jury setting, his lawyers have informed the government that he would assert his constitutional right against self-incrimination, according to two people briefed on the matter.

In contrast, five senior SAC executives who also received subpoenas have met with prosecutors in recent weeks, said the people briefed on the matter, who were not authorized to speak publicly about the case. It is unclear whether those interviews were in lieu of testifying before the grand jury. The five are Thomas J. Conheeney, the firm’s president; Solomon Kumin, chief operating officer; Steven Kessler, chief compliance officer; Phillipp Villhauer, head of trading; and Anthony Vaccarino, a portfolio manager.

None of the executives have been accused of any wrongdoing. And neither the firm nor Mr. Cohen, who owns it, has been charged. Mr. Cohen, 57, has maintained that he behaved appropriately at all times.

A spokesman for SAC declined to comment.

The prosecutors are facing a looming deadline to bring charges against SAC connected to suspicious trading in two drug stocks. The government has already charged a former SAC employee, Mathew Martoma, connected to those trades, saying that he bet against shares of Elan and Wyeth while in possession of secret information about the companies’ drug trials. Because the trades started on July 21, 2008, the government has roughly four weeks to bring additional charges before the five-year limitation runs out.

With that deadline approaching, prosecutors are contemplating a case against SAC itself, according to the people briefed on the matter. Such a move, which would effectively destroy the fund, could include bringing charges against SAC related to Mr. Martoma’s trades on a theory of corporate criminal liability, the people said. Under that theory, the government can impute criminal liability to a company based on the benefit it received from an employee’s acts that the authorities say are criminal.

While the government has said that Mr. Cohen played a role in authorizing the trades, it has not asserted that he was aware of the confidential data that Mr. Martoma is accused of obtaining.

Mr. Cohen’s decision not to testify was expected. Last month, when he received a subpoena to testify, SAC notified its investors that, “While we have in the past told you of our cooperation with the government’s investigation, our cooperation is no longer unconditional.”

It is unclear whether Mr. Cohen appeared in person to assert his constitutional right. Typically, when a witness’s lawyer has indicated that the client refuses to testify, the United States attorney’s office in Manhattan will instead accept a letter conveying those plans. As criminal authorities continue to scrutinize SAC, federal regulators are also weighing action. In March, the hedge fund agreed to pay $616 million to settle two civil cases brought by the Securities and Exchange Commission related to the Elan and Wyeth trades, as well as trading in Dell.

Yet the S.E.C. is still contemplating a civil action against Mr. Cohen, according to people briefed on the case. Among the possible claims against the hedge fund manager, the S.E.C. could accuse Mr. Cohen of insider trading related to the drug stocks. The agency has also weighed citing Mr. Cohen for failing to supervise his employees, a civil charge that another federal regulator leveled this week against Jon S. Corzine, the former chief executive of MF Global.

The S.E.C., which could assess a fine and seek to ban Mr. Cohen from the securities industry, has a lower burden for proving a case than criminal authorities do. While prosecutors must prove their case beyond a reasonable doubt, the regulator would have to show only a preponderance of the evidence.

With the government’s relentless pursuit of SAC, the fund’s investors have withdrawn substantial amounts of money. In addition to withdrawing $1.7 billion earlier in the year, investors this month asked to redeem an even larger sum, according to a person briefed on the matter, leaving SAC with a fraction of the $6 billion in outside capital it had at the beginning of 2013. Mr. Cohen’s fortune accounts for more than half of the fund’s assets.

Mr. Cohen has privately expressed frustration with the toll that the protracted inquiry has taken. In a recent conversation with a senior Wall Street executive, Mr. Cohen said, “I sleep at night and I didn’t do anything wrong, but that doesn’t mean that they can’t ruin my business.”