New Goldman Hire Points to SAC's Survival
SAC Capital is under intense scrutiny from the government over alleged insider-trading violations, but at least one Wall Street firm with a track record of getting things right appears to be betting that the big hedge fund will ultimately survive.
Goldman Sachs (NYSE:GS) recently lured away from arch rival Morgan Stanley (NYSE:MS) a veteran stock salesman who counts as his biggest client SAC Capital. The salesman, Jack Johnston, was offered a lucrative managing director position at the prestigious Wall Street firm — a promotion from his previous job as an executive director at Morgan.
The move comes as the government continues to weigh possible insider-trading charges against SAC and its founder Steve Cohen. Cohen, through a spokesman, has said he’s done nothing wrong, but as many as nine current and former SAC officials have been implicated in the federal crackdown.
Now, Wall Street executives assessing the likelihood of charges of insider-trading charges against Cohen and SAC are pointing to Johnston’s hiring as a good sign for the hedge fund.
“Goldman is obviously betting that whatever happens in the investigation, SAC and Cohen will make it,” said one Wall Street trader who has first-hand knowledge of Johnston’s hiring. “There’s no way that Goldman would offer someone whose biggest client is SAC a managing director spot if it thought SAC was going away.”
Goldman has been known for its ability to make sound market calls, which is one major reason why so many on the Street say the firm is betting on SAC. The big Wall Street firm saw the coming of the 2007 and 2008 financial crisis before most big banks, and ultimately survived the tumult better than its competitors.
A spokesman for Goldman confirmed Johnston’s hiring but declined to comment further. Johnston could not be reached for comment.
One senior executive at the firm said that Johnston was hired not just for his contacts at SAC, but also with other big clients. “I wouldn’t read too much into this as far as SAC is concerned,” this executive said.
According to his brokerage record, Johnston broke into the securities business in 1999; he had been working at Morgan Stanley since 2007. He just joined Goldman, and according to one Wall Street executive with knowledge of the move, Morgan wanted to keep him at the firm because of his connections to SAC.
A Morgan spokesman declined comment.
Since its inception in 1992, SAC Capital had been among Wall Street’s best customers because the hedge fund had a huge appetite for buying and selling stocks.
But that was before the government increased its scrutiny of the hedge fund, several current and former employees, and Cohen. Amid all this, investors have recently yanked billions of dollars from the fund, known for its stellar long term performance.
Investors are fearful that possible criminal charges against SAC or Cohen would cause the fund to shut down. In recent months, the Justice Department has indicted former SAC portfolio manager Mathew Martoma, and portfolio manager Michael Steinberg, who is currently on a leave of absence, over alleged insider-trading violations.
Both Martoma and Steinberg have maintained their innocence, and Cohen has not been charged. But investigators have made it no secret that they want Martoma and Steinberg to provide evidence in order to build a case against Cohen, as the statute of limitation on possible charges approaches in mid- to late July.
Wall Street executives have been speculating for months on whether these charges will ever materialize. Some say the government generally doesn’t waste its resources on targets that it doesn’t ultimately pursue; the government has been investigating Cohen and SAC for alleged insider trading since at least 2007. At one point, the FBI had wiretapped Cohen's home telephone, though people close to the probe say it turned up no solid evidence of insider trading.
Others say the fact that the government hasn’t brought criminal charges against Cohen (SAC has recently settled civil charges with the Securities and Exchange Commission) is proof that it doesn’t have a case. Former Mayor Rudy Giuliani, the Manhattan US Attorney who led an insider-trading crackdown in the 1980s, told the FOX Business Network that he believes that Cohen was “probably pretty well insulated” from possible improprieties elsewhere at the firm because if he wasn’t the “case would have been brought by now.”
Goldman Sachs might be making the same assessment.