SAC Capital Advisors, synonymous with an insider trading scandal that has consumed the hedge fund industry, will soon cease to exist as Wall Street has known it.
Steven A. Cohen’s 22-year-old hedge fund — once the envy of Wall Street — is completing plans to change its name and its corporate structure by mid-March, according to people briefed on the matter, a rebranding effort that comes after SAC pleaded guilty last year to criminal insider trading charges.
In the spirit of the plea deal, which ordered SAC to shut its doors to outside investors, the new firm will condense into fewer legal entities and will not accept any external money. The slimmed-down operation, the people said, will operate as a so-called family office that manages employee money and an estimated $9 billion from the personal fortune of Mr. Cohen, SAC’s owner and founder.
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Video“We have taken to heart the government’s criticisms of our business model, and as we convert to a family office we are making substantive changes,” an SAC spokesman said in a statement, declining to discuss specifics of the new firm.
Still, Mr. Cohen will remain chief executive of the new, yet-to-be-named business. And the firm will simply reshuffle its staff to add a layer of management between Mr. Cohen and the firm’s existing traders, another nod to the plea deal and the government’s apparent fixation with seeking to link Mr. Cohen to illicit trading.
Mr. Cohen’s decision to abandon SAC, the details and timing of which have not been previously reported, comes as Wall Street starts to distance itself somewhat from the firm. Deutsche Bank, one of SAC’s lenders and trading partners, cut ties with the hedge fund in recent weeks, the people briefed on the matter said, citing the “reputational risk” of dealing with SAC.
Together, the new developments provide the most vivid illustration yet of SAC’s steep fall from powerful hedge fund to marginalized player. While SAC has been under investigation for the better part of a decade, its indictment in July and subsequent guilty plea in November put in motion a series of painful setbacks that have now led to its unwinding.
As SAC transitions to a leaner version of its old self, its relevance on Wall Street is likely to wane. And with concerns about reputation and risk at the forefront of Deutsche Bank’s decision, other banks could re-examine their relationships.
For now, it is unclear how the other banks will react to the new-look firm.
SAC’s sheer size and the frequency of its trading for years generated unrivaled commissions for the banks, which have largely stood by its side. Days after SAC’s indictment, Gary D. Cohn, the president of Goldman Sachs, lent public support to the hedge fund, telling CNBC, “They’re an important client to us.”
Even in recent days, SAC has maintained an appearance of business as usual. One American bank, when sending out a schedule to executives this weekend for a series of “pitches” for the initial public offering of a European company, included a visit to SAC’s offices in Manhattan, according to a person who received the schedule.
But as SAC focuses on returning whatever is left of $6 billion of client money and unwinding many of its investments, Wall Street will become less dependent on SAC’s lucrative fees. Some of SAC’s banking relationships overseas have already slowed since the shutdown of its London office.
Months ago, Deutsche Bank laid the groundwork for its decision to cut ties with SAC. In the fall, after SAC repaid a private bank loan that was backed by some of Mr. Cohen’s art collection, Deutsche Bank did not renew the loan.
A spokeswoman for Deutsche Bank declined to comment.
It was not until last week that both sides officially agreed to sever ties. Mr. Cohen was not directly involved in negotiating the resolution of the relationship.
As other companies tainted by scandal have done, SAC may use its new name and structure as vehicles for a new beginning. SAC’s rebranding, playing out under the watchful eye of the government, might send a message to the authorities that the firm is resigned to a smaller and simpler existence. Even before SAC was indicted, Mr. Cohen was pulling back from trading, people close to him say, as he assumed a role more akin to a chief executive than a trader.
“Steve Cohen and the management team are determined to do what they can to prevent a repeat of the problems we experienced and so we are simplifying our business, increasing management oversight and continuing to strengthen our compliance program,” the SAC spokesman said. “This goes beyond rebranding.”
But the new look is not a panacea for the firm’s problems. So long as it involves SAC’s top executives and Mr. Cohen, known as the driving force behind the firm that currently bears his initials, the firm by any name will be a magnet for federal scrutiny.
While Mr. Cohen has not been charged criminally, he remains under investigation by the F.B.I. And he still faces a civil administrative case from the Securities and Exchange Commission, which accused him of failing to supervise his employees who were criminally charged with insider trading. All told, eight current or former SAC employees have been charged.
SAC’s rebranding effort comes as some of those employees remain in the legal spotlight. In December, a federal jury found Michael S. Steinberg, the highest ranking SAC portfolio manager to face charges, guilty of insider trading. And in recent days, prosecutors wrapped up their insider trading case against another SAC portfolio manager, Mathew Martoma. That case is expected to go to the jury this week.
The cases underpinned the indictment of SAC, with federal prosecutors in Manhattan accusing the firm of being a “veritable magnet of market cheaters.” The law of corporate liability allows the government to attribute the bad acts of employees to a company as long as the employees acted “on behalf of and for the benefit of” the company.
In November, the prosecutors announced a plea deal with SAC, the first large Wall Street firm in a quarter century to confess to criminal conduct. Under the terms of the deal, the hedge fund agreed to plead guilty to all five counts, pay $1.2 billion to the government and terminate its business of managing money for outside investors.
Although a judge is still weighing whether to approve the deal, SAC has wasted no time retrenching.
In the wake of the indictment, the hedge fund slimmed down its work force, struck a deal to sell its reinsurance unit and shuttered some offices. SAC also laid off around two dozen investor relations and marketing employees and a half-dozen analysts and traders in the United States.
Solomon Kumin, the firm’s chief operating officer and one of Mr. Cohen’s trusted lieutenants, recently announced plans to leave the firm. In a letter to employees announcing the departure, Mr. Cohen said that as SAC transformed into a smaller firm, “we will not need the same degree of business development activity or investor relations as before.”
The SAC spokesman declined to comment on the firm’s rebranding plans. But the people briefed on the matter, who spoke on the condition of anonymity because they were not authorized to discuss the private plans, offered a look inside the rebuilding process.
Under the new family office structure, SAC will condense its three stock trading units — SAC Capital, CR Intrinsic and Sigma Capital — into two new legal entities. One of the entities will also act as the parent company, employing the firm’s corporate staff and Mr. Cohen, who will sit atop the operation.
For day-to-day management of the trading units, the people said, Mr. Cohen is turning to two top lieutenants.
Phillipp Villhauer, SAC’s head of trading, will run one of the entities, while Michael Ferrucci will return from his position as head of SAC’s London office to oversee the other. They will report to a new layer of management, which in turn will answer to Mr. Cohen and Thomas J. Conheeney, SAC’s president.
A third unit will house the quantitative trading business. Ross Garon, who currently oversees that arm of SAC’s business, will continue to manage the unit.
At first, SAC will continue to exist alongside Mr. Cohen’s new family office. SAC will draw on minimal resources while it unwinds its so-called side pockets, segregated accounts that contain various illiquid investments.
Eventually, Mr. Cohen will retire the SAC name for good.
Matthew Goldstein contributed reporting.