Even when he loses, the billionaire investor Steven A. Cohen manages to find a way to win.
Overlooked in the judge’s approval last week of the guilty plea entered by Mr. Cohen’s hedge fund SAC Capital Advisors to insider trading charges is that the firm was given 90 days to pay a $1.2 billion penalty to federal prosecutors. That is longer than the 30 days recommended by federal probation officials but it is the time frame lawyers for SAC and federal prosecutors agreed to in November, when the hedge fund entered its guilty plea.
The 90-day time frame means Mr. Cohen’s newly christened family office Point72 Asset Management will have more flexibility to deploy capital to the roughly 80 portfolio managers and trading teams that remain with the firm. In other words, Point72 will effectively get another full quarter in the markets to take advantage of that $1.2 billion before it must turn it over prosecutors.
It’s easier for stock-focused investment firms fund to liquidate positions to raise cash than firms that trade mostly bonds or other less liquid securities. So given that Point72, like its predecessor, mainly trades stocks, it shouldn’t be difficult for Mr. Cohen to come up with the necessary cash when the deadline runs out in mid-July.
To put the $1.2 billion sum in perspective, it represents roughly 10 percent of the $11.9 billion in net assets SAC reported to the securities regulators shortly before it converted to a family office that will manage mostly Mr. Cohen’s money. But since Mr. Cohen’s new firm will also use borrowed money from Wall Street banks to boost its trading power, the relative worth of that $1.2 billion could be closer to $4.2 billion. That’s assuming Point72 operates at a similar leverage ratio as SAC.
If Mr. Cohen were to allocate the $1.2 billion to a single portfolio manager and his team, it would be one of the largest single accounts with the firm. Gabriel Plotkin, one of Mr. Cohen’s best-performing managers who is leaving at the end of the year to start his own hedge fund, manages a little over $1 billion of the firm’s money, not including the impact of leverage.
So Mr. Cohen, who personally made $2 billion last year even in the midst of an insider trading scandal that dominated the business headlines, is in the position to make a nice amount of money from the $1.2 billion his firm owes the government, if it trades wisely.
James Margolin, a spokesman for Preet Bharara, the United States attorney for the Southern District of New York, whose office indicted SAC last summer and negotiated the plea deal, did not comment on why prosecutors had agreed to the 90-day deadline.
It’s also not clear why prosecutors did not request that Mr. Cohen’s firm put the money to be paid, or some portion of it, into an escrow account, which would prohibit Mr. Cohen’s firm from trading with it. A person briefed on the situation but not authorized to discuss the matter publicly said escrow arrangements are rare in criminal cases.
Once the $1.2 billion is paid, Point72 is expected to have $9 billion to $10 billion in assets not accounting for leverage, or borrowed money. The firm will also manage about $611 million in so-called illiquid investments â€" assets that can’t be easily sold â€" that technically belong to some of Mr. Cohen’s former investors in SAC. The proceeds from those assets will eventually be returned to Mr. Cohen’s former investors once they are liquidated.
In the meantime, though, it’s fair to think of Point72 as a family office with a rump SAC appendage.
