By Bernard Vaughan and Emily Flitter
NEW YORK (Reuters) - Billionaire investor Steven A. Cohen's hedge fund pleaded not guilty on Friday to insider trading charges in federal court, as investors in the roughly $15 billion fund awaited word on plans for the fund's future.
Several SAC Capital Advisors LLP clients said they had yet to be contacted officially by the firm in an investor-wide call or note. Investors have until August 16 to decide if they will submit a redemption request to the fund. At least one client called, but could get no information.
Separately, the influential insurance ratings group, A.M. Best Co. said on Friday it was monitoring the situation at the hedge fund's reinsurance unit, SAC Re Ltd.
A year ago it gave the hedge fund's reinsurance unit a top rating, but if the company were to cut that rating in the wake of criminal charges, people may shy away from doing business with SAC Re, insurance industry experts said.
Prosecutors said on Thursday that SAC had presided over a culture where employees flouted the law and were encouraged to tap their personal networks for inside information about publicly traded companies.
The criminal case imperils the future of one of Wall Street's largest hedge funds and could end Cohen's career of managing outside money. His average annualized returns of 25 percent beat most of his rivals.
"Cohen is obviously an industry legend who will not accept criminal charges against the fund that bears his name lightly," said defense lawyer Mark Kornfeld, a partner at Baker & Hostetler. "To date (U.S. Attorney) Preet Bharara has not lost any insider-trading case he or his office have brought."
Prosecutors did not charge Cohen personally, but the U.S. Securities and Exchange Commission has filed a separate civil case against him for failing to supervise two employees.
The SEC is expected to delay the civil case while the criminal trial proceeds. Prosecutors also brought a civil case seeking forfeitures and money laundering penalties.
The government's evidence in the criminal case includes a lot of "court-authorized wiretaps" and "a large number of electronic recordings," such as emails and instant messages, Antonia Apps, an assistant U.S. attorney who has prosecuted other insider-trading cases, told U.S. District Judge Laura Taylor Swain.
The government would provide the bulk of its evidence to SAC's defense lawyers within 30 days, Apps said.
Jonathan Gasthalter, a spokesman for SAC, declined to comment.
U.S. prosecutors said SAC's illegal practices ran roughly from 1999 to 2010. SAC and various affiliates were charged with four criminal counts of securities fraud and one count of wire fraud.
Bharara declined on Thursday to give a specific dollar figure for the amount his office is seeking from SAC. But prosecutors contend in court papers that SAC made "hundreds of millions of dollars" in illegal profits from insider trading, and the penalties they seek could be up to three times the amount of the illegal gains.
SAC sought to assure investors its assets were not frozen and redemptions would continue unhindered. Skittish investors have already withdrawn roughly $4 billion from the firm in the first half of the year.
Two investors said they were waiting for guidance from SAC before they decide what to do about their investment.
"I'll have to make that call between now and August 16," said one of those investors, who declined to be named due to an ongoing relationship with the fund.
"I'll see what happens, what color I can get between now and then."
The person had reached out to SAC on Thursday to get some insight on the next steps for the firm, but to no avail.
WAITING FOR EVIDENCE
The strength of U.S. prosecutors' case will become clearer once the evidence they are planning to use is laid out, legal experts said.
"From that, I think you'll start getting a much better sense for the context of some of the things that are in the indictment and how solid the proof is," said defense lawyer Andrew Wise, a partner at Miller Chevalier.
Ted Wells, a defense lawyer representing SAC Capital, told the judge he was "most concerned" about obtaining statements that former SAC Capital employees gave to the government.
Apps, the prosecutor, said it was unclear that the statements would have to be turned over to SAC lawyers.
Wells did not name anyone, but several former SAC employees, including Noah Freeman, Jon Horvath, Donald Longueuil and Wesley Wang, have pleaded guilty to charges of criminal insider trading. No criminal charges have been brought against Cohen.
"Over the next six months you'll get a sense for why the DOJ charged the entity and failed to charge any of the high-ranking executives," Wise said.
Swain did not decide the issue, but set a September 24 court date to discuss evidence.
SAC's lawyers on Friday included: Wells, Daniel Kramer and Michael Gertzman of Paul, Weiss, Rifkind, Wharton & Garrison; and Martin Klotz and Michael Schachter of Wilkie Farr & Gallagher.
The criminal case is U.S. v. SAC Capital Advisors LP et al, U.S. District Court, Southern District of New York, No. 13-cr-00541. The civil case is U.S. v. SAC Capital Advisors LP et al in the same court, No. 13-05182.
(Reporting by Bernard Vaughan and Additional reporting by Sarah N. Lynch in Washington, Emily Flitter and Katya Wachtel in New York and Svea Herbst-Bayliss in Boston; Editing by Paritosh Bansal, Gerald E. McCormick, Jeffrey Benkoe and Leslie Gevirtz)
