SAC Capital Advisor’s founder and manager, Steven Cohen claimed his right to the Fifth Amendment to prevent self incrimination in connection with the United States government’s insider trading investigation against his hedge fund, according to report from Bloomberg citing sources familiar with the issue.

Steven Cohen

Steven Cohen And Other Executives Ordered To Testify In Court

In May, Steven Cohen received a subpoena to testify before a grand jury as part of an intensified investigation of federal authorities regarding the alleged insider trading activities of SAC Capital Advisors. Aside from Steven Cohen, other high-ranking executives of the hedge fund were also ordered to testify in court. Back then, a lawyer familiar with the situation indicated that Steven Cohen would invoke his constitutional right against self-incrimination.

According to Bloomberg, it is unclear whether Steven Cohen claimed his Fifth Amendment right before the grand jury or if he had been excused to appear in court after informing prosecutors about his decision to the privilege.

Thomas Gorman, a partner at Dorsey & Whitneyy LLP, a law firm in Washington said that he would advise the same thing—not to testify because it appears that authorities are trying to build their case instead of investigation.

“I wouldn’t have recommended that he goes in to testify given how this looks like the government is trying to build a case around Steven Cohen, rather than investigate one. It just seems that the government is reaching for a theory to support their beliefs,” said Gorman.

Based on government manual, if a “target” of a government investigation declined to testify under the grounds of the Fifth Amendment, the person does not normally appear before a grand jury. A ‘target” is a person whom the prosecutor or grand jury holds significant evidence that would link him or her to a crime. He is considered a putative defendant. Based on the definition, Steven Cohen appears to be a “target” given his situation as head of the hedge fund.

SAC Capital – The Center Of Insider Trading Investigation

SAC Capital Advisor became the center of insider trading investigations since the Securities and Exchange Commission (SEC) filed a lawsuit against the hedge fund’s former portfolio manager, Mathew Martoma. The commission alleged that he arranged the trades of a certain hedge fund  involving the shares of Wyeth Limited (NSE:WYETH) and Elan Corporation, plc (NYSE:ELN).  Authorities consider its lawsuit against Martoma as the “most lucrative insider-trading ever.”

The hedge fund agreed to settle the insider-trading lawsuit related to Martoma’s trades by paying a penalty of $600 million. However, SAC Capital Advisors failed to reach a settlement agreement with the SEC to end the investigation. In May, the hedge fund informed its investors that it will no longer cooperate unconditionally with the government.

The five-year statute limitations related to Martoma’s alleged insider trading activities in 2008 will expire in late July. He pleaded not guilty on the allegations, and refused to provide information against Steven Cohen.