Compliance Solutions for Investment Advisers

Failing to Supervise Results in Liability

The Securities and Exchange Commission today announced charges against hedge fund adviser Steven A. Cohen for failing to supervise two senior employees and prevent them from insider trading under his watch.

The SEC’s Division of Enforcement alleges that Cohen received highly suspicious information that should have caused any reasonable hedge fund manager to investigate the basis for trades made by two portfolio managers who reported to him – Mathew Martoma and Michael Steinberg.  Cohen ignored the red flags and allowed Martoma and Steinberg to execute the trades.  Instead of scrutinizing their conduct, Cohen praised Steinberg for his role in the suspicious trading and rewarded Martoma with a $9 million bonus for his work.  Cohen’s hedge funds earned profits and avoided losses of more than $275 million as a result of the illegal trades.

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