SAC's top consumer trader draws scrutiny from U.S. authorities
7 MIN READ
Authorities reviewing trades by Plotkin, other managers
Probe concerns trading in Weight Watchers in 2011
Plotkin makes decisions involving $1.2 bln in assets
Plotkin on SAC emails about Dell earnings
By Matthew Goldstein and Emily Flitter and Jennifer Ablan
NEW YORK, Dec 19 (Reuters) - U.S. authorities are examining trading by one of SAC Capital Advisors’ most successful portfolio managers, Gabriel Plotkin, as part of a probe into the $14 billion hedge fund firm’s investment in Weight Watchers International Inc last year, according to a person familiar with the investigation.
Plotkin, a specialist in consumer and retail stocks who makes investment decisions for more than $1.2 billion worth of assets, is among several SAC portfolio managers whose trades are being investigated, said the source, who did not want to be identified. The source would not name the other managers.
Federal authorities are trying to determine whether any of SAC Capital’s retail and consumer portfolio managers traded Weight Watchers shares based on non-public confidential information about the diet company, said the source and another person familiar with the investigation.
The two sources said it is too soon to conclude if there was any insider trading. Authorities have not charged Plotkin with any wrongdoing.
Plotkin, who is based in New York and works for SAC Capital’s Sigma Capital Management division, did not return a request for comment.
“Gabe Plotkin has built a successful career on a commitment to sound fundamental research,” said an SAC Capital spokesman, who declined to comment on the Weight Watchers probe.
With a hedge fund the size of SAC Capital, which was founded 20 years ago by Steven A. Cohen, it is not uncommon for many portfolio managers to be trading the same stocks.
Last year, Plotkin and his team of a half-dozen traders and analysts produced between $150 million and $200 million in profits for Cohen’s fund, some of which came from trades of shares of Weight Watchers, said a person familiar with the hedge fund, who declined to be identified because he is not authorized to speak for SAC Capital.
Over the past two years, Plotkin, 34, has emerged as one of the most successful portfolio managers at SAC Capital, said this person. Plotkin and his wife own a condo on Manhattan’s Upper East Side, as well as a home in Southampton, which is part of the Hamptons’ summer playground for the city’s wealthy.
The Weight Watchers inquiry, first reported by Reuters on Dec. 7, is focusing on trading by SAC Capital in the first half of 2011 when the Stamford, Connecticut-based hedge fund bought and sold some 2.1 million shares during a period when the diet company’s stock price roughly doubled.
The probe is the latest in a long line of investigations by federal authorities dating back to at least 2007 that have looked into whether some of SAC Capital’s outsized performance is the result of trades relying on insider information.
A spokesman for U.S prosecutors in New York declined to comment.
Plotkin is one of 11 portfolio managers at SAC Capital who trade consumer and retail stocks. It is not clear how many of those managers, all of whom manage less money than Plotkin, are being scrutinized by federal authorities.
Plotkin, who came to SAC Capital in 2006 from North Sound Capital, is widely known in the $2 trillion hedge fund industry as one of the top consumer and retail traders, said several people who know him.
Plotkin’s name recently surfaced in several emails that federal prosecutors introduced into evidence in a separate insider trading case. In that case, Todd Newman, a former portfolio manager at Diamondback Capital Management, and Anthony Chiasson, co-founder of Level Global Investors, on Monday were convicted of illegal trading in Dell Inc shares.
The emails involved discussions by Jon Horvath - a former trader at SAC Capital’s Sigma division who pleaded guilty in September to trading on inside information - with his former supervisor, Michael Steinberg, and Plotkin. The prosecutors used the emails to persuade a federal judge to declare Steinberg an uncharged co-conspirator for the purposes of the trial.
In the emails, reviewed by Reuters, there was a discussion between Steinberg and Horvath about Dell’s upcoming earnings. These emails were also sent to Plotkin. In an August 2008 email to Steinberg and Plotkin, Horvath writes he has a “2nd hand read from someone at the company” about gross margins and earnings.
Steinberg, whose lawyer did not return a request for comment, has not been charged with any wrongdoing.
U.S. prosecutors, the Federal Bureau of Investigation and the Securities and Exchange Commission have been gradually ratcheting up pressure on Cohen, 56, one of the hedge fund industry’s best-known managers.
Two weeks ago, U.S. prosecutors charged a former SAC Capital employee, Mathew Martoma, with using inside information to generate profits and avoid losses totaling $276 million in shares of two drug stocks. Martoma has not entered a plea, but his lawyer has said he expects to be exonerated.
The SEC also has formally warned SAC Capital that the firm could face civil charges.
Martoma is the seventh person once associated with SAC Capital to be either charged or implicated by federal authorities in insider trading. Authorities have not charged Cohen with any wrongdoing and the firm has repeatedly said it has strong compliance measures in place.
The investigations have not had a visible impact on SAC Capital’s investor redemptions or employee turnover.
The investigation into trading in Weight Watchers comes as federal authorities are also looking at trading by SAC Capital in shares of bio-tech company InterMune in 2010. A person familiar with the InterMune and Weight Watchers investigation said authorities are looking into some of the trading done by former SAC Capital portfolio manager Nikej Shah.
Shah, who left SAC Capital last year, did not return several calls seeking comment.