The billionaire investor Steven A. Cohen is putting pressure on his traders to try to keep his investment firm together, as the once-powerful hedge fund awaits a judge’s decision next week on its guilty plea to securities fraud charges.
Mr. Cohen is seeking to stem a slow but steady departure of top portfolio managers by pressing those who remain to sign two-year contracts that would bind them to him until the end of 2016, said people briefed on the matter. His firm has also threatened to sue some traders who left before their existing contracts were up and required them to delay the start dates of their new jobs as a condition for their early release, these people said.
The push by Mr. Cohen to lock up as many top traders as possible is an indication that the future success of what will become a firm managing only the 57-year-old investor’s considerable fortune is still uncertain. In letters to the staff, Mr. Cohen has said the firm doesn’t intend to shrink much below its current size of 850 employees and expects to operate for many more years despite an insider trading investigation that has led to guilty pleas or convictions of eight former SAC employees.
On Monday, SAC Capital will rechristen itself Point72 Asset Management, named after its offices at 72 Cummings Point Road in Stamford, Conn. Just three days later, Judge Laura Taylor Swain of the United States District Court in Manhattan will decide whether to accept or reject the firm’s guilty plea and agreement with federal prosecutors. Under that deal, the firm will pay a $1.2 billion penalty and stop managing money for outside investors.
In the weeks leading up to the judge’s April 10 decision, Mr. Cohen and his associates have taken a number of steps to send a message to the judge and Preet Bharara, the United States attorney in Manhattan, that the firm has changed and will no longer be a breeding ground for insider trading. SAC has said that it is “deeply remorseful” and that it is looking to hire a former prosecutor or securities regulator to police its traders. Recently, the firm signed a deal with a software company backed by the Central Intelligence Agency to monitor trading. Federal prosecutors are expected to file a sentencing memo later this week.
But some employees are not convinced that the firm will remain a powerhouse stock trading shop once it becomes a family office, managing mostly $9 billion of Mr. Cohen’s money, said the people briefed on the matter, who spoke on the condition of anonymity because they were not authorized to speak publicly. There is concern that the firm will have trouble recruiting top talent to replace those who leave because of the scandal and will then struggle to generate the double-digit returns it has historically produced.
As a result, the effort to get as many as half of the firm’s roughly 90 portfolio managers to sign two-year contracts is causing some consternation at the firm. The two-year contracts are being seen as an aggressive move by Mr. Cohen to limit the options of his top traders, many of whom believe they have been loyal soldiers to him during the nearly decade-long investigation into allegations of insider trading, said the people briefed on the matter.
Over the years, SAC has had a history of signing top talent to two-year contracts. The contracts historically have guaranteed a degree of stability in staffing for Mr. Cohen and have been a source of comfort to traders, giving them some degree of job security given Mr. Cohen’s mercurial temper and lack of patience for traders who lose money.
Jonathan Gasthalter, an SAC spokesman, declined to comment.
Others close to the firm say that SAC is merely doing what is necessary to keep its talent in place and ensuring that those who leave early honor the terms of their contracts.
In the last three months, about a dozen portfolio managers and analysts have left SAC for other hedge funds, including BlueCrest Capital Management, Moore Capital Management, Balyasny Asset Management and Highbridge Capital Management.
Several of those who left were still under contract to SAC and were threatened with lawsuits by the firm if they went to work at their new jobs immediately, said people briefed on the matter. Litigation was avoided in those cases because the departing employees agreed to forfeit deferred compensation owed them and agreed not to report to their new firms until their contracts expired.
Another approach Mr. Cohen has been taking to stem a rash of defections is to promise to invest some of his money with top portfolio managers after they leave to start their own hedge funds. Mr. Cohen has agreed to invest up to $200 million with Gabriel Plotkin, one of SAC’s top portfolio managers, who plans to leave at the end of the year to start his own hedge fund. Mr. Plotkin, who manages about a $1 billion for Mr. Cohen, trades mainly consumer stocks.
The people briefed on the matter said that Mr. Cohen was considering whether to enter into similar agreements with several other top traders who are also weighing departures.
Two other top traders said to be exploring whether to leave SAC are David Rosen, one of the firm’s top investors who employs activist strategies, and David Fiszel, a media and telecommunications trader. A person with knowledge of SAC said the two men had indicated that they intended to remain with the firm.
One concern for the firm is how to replace the firepower of traders like Mr. Plotkin.
Even though the investigation of SAC and Mr. Cohen appear to be winding down, risks still remain. Federal authorities have said they are continuing to investigate allegations of improper trading by SAC employees in a number of stocks. And several former employees who are cooperating with the investigation have yet to be sentenced.
Mr. Cohen still faces a civil administrative failure to supervise action filed by the Securities and Exchange Commission.
Industry recruiters say those regulatory loose ends make it difficult for the firm to hire anyone but more junior investment management personnel.