Senator Charles Grassley (R-Iowa) said on Saturday, he was looking into some 20 stock trades by SAC Capital Advisors.  By Monday, the investigation reportedly had expanded into options and derivatives.

The inquiry is the result of a letter sent by Mr. Grassley on April 26 to FINRA asking it to provide information on the “potential scope of suspicious trading activity” at SAC, the hedge fund run by the billionaire investor Steven A. Cohen.  Mr. Cohen’s firm, one of the largest hedge funds in the world, has become ensnared by the government’s vast investigation into insider trading at hedge funds.  The inquiry resulted in the conviction earlier this month of Raj Rajaratnam, the head of the Galleon Group.

As part of an investigation separate from the one involving Mr. Rajaratnam, two SAC portfolio managers have pleaded guilty to making illegal trades based on secret corporate information. No charges have been brought against SAC or Mr. Cohen. A firm spokesman has said that SAC was “outraged” by the conduct of the two portfolio managers, Noah Freeman and Donald Longueuil. 

In his letter to FUBRA, Mr. Grassley, the ranking Republican on the Senate Judiciary Committee, said that “while SAC Capital itself has not been charged, these allegations raise serious questions about the corporate culture at SAC Capital and undercut investor confidence in a fair and balanced playing field.”

Last week, Finra provided Mr. Grassley with details of SAC’s trading.  The stock transactions were made over the last decade and previously were referred to the SEC.  They included trades made around the time of merger announcements or other market-moving events.  News of the SAC trades that Finra provided to Mr. Grassley was first reported by The Wall Street Journal.

Earlier this month, SAC executives, including Peter Nussbaum, the firm’s top lawyer, and its outside counsel met with staff members in Mr. Grassley’s office to discuss his inquiry.  Mr. Grassley’s aggressive stance toward SAC reflects the senator’s past criticism of the S.E.C. for not being vigilant enough in its pursuit of illegal activity on Wall Street, including its failure to uncover frauds including Bernie Madoff’s huge Ponzi scheme.  Now Mr. Grassley’s attention has turned to insider trading.  “The use of nonpublic information for insider trading purposes is sadly alive and well in our nation’s financial markets,” Mr. Grassley wrote in his letter to Finra. “More must be done to investigate and bring these criminals to justice.”   [NYTimes, 5/21/11]