In a detailed memo to employees, SAC Capital rebutted SEC allegations that its chief failed to initiate action to prevent insider trading.

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James Sterngold and Jenny Strasburg of The Wall Street Journal reviewed the 46-page ‘white paper’ prepared by SAC lawyers rebutting SEC’s allegations as baseless.

SEC’s allegations

Last week, the SEC filed a civil suit against SAC Capital chief Steven Cohen, attempting to bar him from ever overseeing an investment fund again. However, the securities regulators have not charged him with any wrongdoing, but the SEC claimed that Steven Cohen failed to take steps to investigate red flags and prevent insider trading at his firm.

SAC lawyers claim Cohen didn’t read Dell email

Last week, the SEC alleged for the first time that Cohen was personally involved in trading activities with two of his subordinates Martoma and Steinberg. The SEC alleged that Cohen sold off hundreds of thousands of shares of Dell in August 2008, after Steinberg sent Cohen an email that included nonpublic information about Dell’s disappointing earnings set to be reported days later.

However, the lawyers in their detailed email memo to employees contended on Mr. Cohen got about 1,000 emails on an average in a day and hence he could open only about 11 percent of them.

The lawyers highlighted that Mr. Cohen was on the phone when the Dell email arrived and hence he would have had just a ‘matter of seconds’ to review the email before taking any trading call.

The memo to employees also elaborated that while Mr. Cohen sold Dell shares, the trade was made because a portfolio manager at an affiliated hedge fund had reversed his view and was selling a portion of his Dell stock.

The lawyers thus concluded that there is no evidence that the SAC chief Steven Cohen read the ‘second hand’ email or spoke to anyone about the email.

Memo defends sale of Pharma shares

SEC also alleged a former portfolio manager at SAC unit CR Intrinsic Investors, Mathew Martoma, received inside information about the results of an Alzheimer’s drug trial, facilitating the hedge fund to record more than $275 million in profits by selling Elan Corporation, plc and Wyeth Limited.

In the email to employees, SAC defended the portfolio manager’s action by indicating the sale was made based on Mr. Martoma’s recommendation to reduce SAC’s exposure as the price has shot up about 40 percent in six weeks.

SAC’s report to employees also defended $9.3 million bonus paid to Mr. Martoma saying numerous other SAC portfolio managers have earned even more than Mr. Martoma.