[ by Larry Goldfarb ]

The government's noose around the neck of Steven A. Cohen, the founder of SAC Capital Advisors and one of the most powerful figures in finance, continues to tighten.  Utilizing wiretaps and selective enforcement measures, the FBI has gotten 6 key members of SAC to become government witnesses and testify to the illegal activities performed at Mr. Cohen's firm.  

Heretofore, Mr. Cohen has not been implicated, seemingly because of the way the firm is set up:  It has about 140 teams — each controlling several hundred of millions of dollars. The teams give their "high conviction ideas" to Mr. Cohen, who directly manages only about 10% of the fund.  SAC compensates employees based on a percentage of the winnings they generate for the fund, as well as on profits they make for Mr. Cohen’s portfolio.

But, in working closely with these former members of the firm, the government is beginning to piece together a scenario as to how Mr. Cohen is involved in the illegal activity.  In a December 6 article in Dealbook, Peter Lattman describes some of the lengths the government has gone to get information about SAC:

As a government cooperator, Mr. Freeman wore a wire and secretly recorded conversations with Mr. Longueuil, who also joined SAC and had been the best man at his wedding. Mr. Longueuil is serving a two-and-a-half year sentence.

Last winter, another agent confronted Mathew Martoma, a pharmaceutical-industry analyst, Matat his 8,000-square-foot Florida mansion. As they stood on the front lawn, with Mr. Martoma’s wife and children inside, the agent told him that they had evidence that he had broken the law. Overcome with stress, Mr. Martoma passed out.

The evidence that has come from the conspirators seems to directly implicate Mr. Cohen:

In a Dec. 16, 2010 interview, Mr. Freeman told investigators that he thought that trafficking in corporate secrets was part of his job description at SAC, according to an F.B.I. agent’s notes of the interview, which were in a court filing and first reported by Bloomberg News.

“Freeman and others at SAC Capital understood that providing Cohen with your best trading ideas involved providing Cohen with inside information,” the agent wrote.

CR Intrinsic Investors, a unit of SAC Capital, had made an uncanny string of immensely profitable, well-timed trades in technology and health care stocks. Their suspicions raised, the team requested more trading reports from the regulatory arm of the New York Stock Exchange. Huge bets by CR Intrinsic on the pharmaceutical companies Élan and Wyeth, placed just before they announced disappointing results from a drug trial, jumped off the page.

The S.E.C. issued a subpoena requesting that SAC produce documents — e-mails, instant messages, phone and trading records — connected to the unusual trades. As they combed through e-mails, S.E.C. lawyers discovered reams of correspondence between Mathew Martoma, a drug stock specialist at CR Intrinsic, and Dr. Sidney Gilman, a neurologist.

Two days before Thanksgiving, federal agents arrested Mr. Martoma. Prosecutors said that Dr. Gilman had leaked him secret data about clinical trials that he was overseeing for an Alzheimer’s drug being jointly developed by Elan and Wyeth.

The case was a turning point in the investigation of SAC because, for the first time, the government linked Mr. Cohen to trades that it contends were illegal. Mr. Martoma and Mr. Cohen collaborated on the Élan and Wyeth transactions, prosecutors said, earning SAC profits and avoiding losses totaling $276 million. After Mr. Martoma learned from Dr. Gilman — whom he met through an expert network — that there were problems with the trials, he reached out to his boss, the government said.

The witnesses who were implicated and have ultimately come forward are:

• Richard Choo-Beng Lee, a hedge fund manager with deep contacts inside technology companies.
• Noah Freeman, who joined SAC in 2008, lured by a two-year, $2 million-a-year guarantee. 
• Jon Horvath, an SAC tech-stock analyst, who once worked at Lehman Brothers. 
• Michael Steinberg, one of SAC’s longest-tenured employees.
• Mathew Martoma, a drug stock specialist at CR Intrinsic, a fund within SAC.
• Dr. Sidney Gilman, a neurologist, involved in drug tests and clinical trials 

For more infomration, please read [NY Times Dealbook, 12/6/12].