Cohen, founder and chief of SAC Capital Advisors, one of the largest hedge funds on Wall Street, did not act on several "red flags" that should have led to questions about whether the two senior portfolio managers were acting on non-public information, the SEC said.
The two men, Mathew Martoma and Michael Steinberg, both reported to Cohen. Both have been charged by the SEC. The Justice Department has also launched criminal proceedings against the two men.
"After learning about red flags indicating potential insider trading by his employees, Steven Cohen allegedly failed to follow up to prevent violations of the law."
The SEC said it would seek to bar Cohen from overseeing investor funds. An order issued by the agency sought an administrative law proceeding.
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An SAC spokesman said the SEC's charges have "no merit" and Cohen will "vigorously" contest the matter.
"Steve Cohen acted appropriately at all times," the SAC spokesman said. "The SEC. Ignores SAC's exceptional supervisory structure, its extensive compliance policies and procedures, and Steve Cohen's strong support for SAC's compliance program."
In March, the SEC announced a record USD 600 million insider trading settlement with SAC affiliate CR Intrinsic to resolve charges that it earned massive profits on confidential information involving the clinical trial of an Alzheimer's drug.
A second USD 14 million settlement announced the same day ended charges that a second SAC affiliate, Sigma Capital Management, traded on non-public information about the quarterly earnings of Dell and Nvidia.