Steven A. Cohen, the founder of SAC Capital Advisors LP, was warned
Steven A. Cohen, the founder of SAC Capital Advisors LP, was warned in 2008 that a prospective employee was part of an “insider trading group” at another hedge fund, according to a criminal indictment unsealed against SAC Thursday.
Mr. Cohen, who was identified in the indictment as SAC’s owner but not by name, went on to hire the trader, Richard Lee — despite the warning from a former colleague of Mr. Lee and over the objections of his legal department.
Mr. Lee went on to trade on inside information on two technology companies Yahoo Inc. YHOO +1.54% and 3Com Corp., the government said in court documents.
Now Mr. Lee is the fifth and latest former SAC employee to cooperate with the government’s investigation into the hedge fund firm. He was also charged Thursday with insider-trading by the Securities and Exchange Commission. Mr. Lee’s illegal trading resulted in $1.5 million in profits, according to the SEC.
Mr. Lee worked at SAC from April 2009 until June 2011, before leaving to explore a new business opportunity, according to the charging documents filed in court. Mr. Lee returned to SAC last December, and stayed until March. He managed a portfolio of up to $1.25 billion, the government said. Mr. Lee pleaded guilty to insider-trading charges in a closed hearing on Tuesday.
He is one of two Richard Lees involved in the government’s case against SAC.
The other, Richard Choo-Beng Lee, was a semiconductor analyst who began working the FBI in 2009. That Mr. Lee, known as C.B. Lee, also provided information against former Galleon Group hedge fund founder Raj Rajaratnam, who was convicted of insider-trading and is serving an 11-year prison sentence.
The Richard Lee who pleaded guilty this week is a Brown University alumnus who was fired from SAC earlier this year when the Chicago office was closed. He is married, and recently had his first child. Between his two SAC stints, he did nonprofit work in Colombia.
Mr. Lee formerly worked at Citadel LLC. That was the firm referred to by the government in the indictment as Mr. Lee’s employer while he was part of an “insider trading group,” according to people with knowledge of the case. A Citadel spokeswoman said Mr. Lee was fired in 2008 for violating company policy unrelated to insider trading.
In a statement, Citadel said Mr. Lee transferred some investments within Citadel “using a pricing methodology not in accordance with generally accepted practices.” The action “would have impacted only his potential future compensation,” Citadel said, adding it was flagged to Citadel management “within hours” and he was terminated “immediately.”
Mr. Lee was told information came from someone at Microsoft, the SEC said. Mr. Lee started buying hundreds of thousands of shares in Yahoo for SAC and a personal account. He and SAC profited when the deal was announced, the SEC said.