Delay Sought in S.E.C. Case Against Steven Cohen

It could be months, maybe even years, before there is a resolution of the Securities and Exchange Commission’s administrative case against the billionaire investor Steven A. Cohen, whose former hedge fund pleaded guilty to insider trading.

In a letter Wednesday to the administrative judge overseeing the S.E.C.’s action against Mr. Cohen, which accuses him of failing to supervise his employees, federal prosecutors requested an extension of an earlier stay that has been in place since August. Prosecutors want the proceeding stayed pending the outcome a closely watched appeal of the convictions of two former hedge fund managers, which could lead to new trials not only for them but potentially others convicted of insider trading.

An appellate ruling in favor of the former fund managers, Anthony Chiasson and Todd Newman, might have a bearing on an anticipated appeal from Michael Steinberg, one of the longest tenured employees of Mr. Cohen to be convicted of insider trading. Prosecutors noted in the letter that Mr. Steinberg’s appeal would most likely raise the same legal challenge to the definition of insider trading that the appellate court is being asked to decide in the appeal filed by Mr. Chiasson and Mr. Newman.

The S.E.C.’s case against Mr. Cohen, filed just before federal prosecutors indicted his SAC Capital Advisors hedge fund, stems from accusations that he failed to properly supervise Mr. Steinberg and other traders at his  firm, which once had $14 billion in assets.

The letter filed by prosecutors working for Preet Bharara, the United States attorney in Manhattan, indicates that federal authorities are worried about the outcome of Mr. Chiasson and Mr. Newman’s appeal and the potential for new trials being ordered.

The three-judge appellate panel that heard the legal challenge in April signaled during a contentious oral argument that it had serious issues with the jury instructions given by the trial judge in Mr. Chiasson and Mr. Newman’s case. The panel appeared to side with the defense lawyers, who argued the trial judge erred when he failed to instruct the jury that it had to find that the traders knew the person providing inside information had received some sort of a benefit. The same judge gave a similar instruction to the jury that heard the case against Mr. Steinberg.

Prosecutors said in the letter that they expected the appeals court to issue its ruling in the next few months. Prosecutors did not say whether they would seek an additional stay if the appeals court overturns Mr. Chiasson’s and Mr. Newman’s convictions. But prosecutors said they would give the administrative judge an update on the need to extend the stay by Aug. 26.

It is not clear whether Brenda P. Murray, the chief administrative law judge, will grant the request to extend the stay, but she has approved to earlier requests by prosecutors. It is also not clear what effect an extended stay would have on any efforts by the S.E.C. and Mr. Cohen to reach a negotiated settlement of the civil action, which could result in a permanent bar from working in the securities industry.

But a securities industry lawyer who spoke on the condition of anonymity because he did not know all the facts of the case involving Mr. Cohen said it was unlikely that prosecutors would object to a settlement of the administrative proceeding as long as it did not interfere with any pending criminal investigation.

A spokesman for Mr. Cohen was not immediately available for comment.

Mr. Cohen, just days before a federal judge accepted his former hedge fund’s guilty plea, rebranded his firm Point72 Asset Management. The new firm, which has more than 800 employees, is barred from managing money for outside investors under the terms of the plea deal entered into by SAC. Point72 operates as a family office that manages Mr. Cohen’s personal fortune of $9 billion to $10 billion.

The failure-to-supervise case ranks as the most serious action taken against Mr. Cohen by either the S.E.C. or federal prosecutors. While eight former employees of Mr. Cohen have either been convicted of or pleaded guilty to charges of insider trading at SAC, the man who founded the firm in 1992 with just $25 million has never been charged with criminal wrongdoing.