BUSINESS
11/28/2012 03:19 pm ET Updated Nov 29, 2012

Steve Cohen, Super-Rich And Secretive Trader, Faces Possible SEC Investigation

Huge news on Wall Street: One of its brightest hedge fund stars, SAC Capital, founded by the secretive, ludicrously wealthy Steven A. Cohen, has been hit with a Wells notice.

What is a Wells notice, you ask? Who is Steven Cohen? Excellent questions, and they will be answered in the fullness of time, Dear Reader. Suffice to say that this might just be a watershed moment in the federal government's wide-ranging crusade to crack down on insider trading. Or it could turn out to be nothing. Either way, exciting!

A Wells notice is an informal heads-up from the Securities and Exchange Commission that there is a decent chance you are about to be in some serious hot water. SAC Capital, a Connecticut hedge fund with $13 billion under management, revealed in a conference call with nervous investors Wednesday morning that it recently received just such a notice from the SEC, CNBC reports.

Though SAC has not yet been formally charged with any wrongdoing -- and may never be formally charged -- federal investigators have been giving it the stink eye for many years now. Several former SAC employees have been caught up in the government's insider-trading probe, with many pleading guilty or cutting deals with the government.

The most recent is former SAC employee Mathew Martoma, who was formally charged on Tuesday with insider trading that the government says netted $276 million. Martoma has denied wrongdoing. The government's complaint in the Martoma case says Martoma discussed his sketchy trades with somebody described only as "Portfolio Manager A," which apparently refers to Cohen, according to anonymous sources interviewed by The Times.

SAC says neither it nor Cohen did anything wrong in the Martoma case, which involved some conveniently timed trades of drug stocks. Cohen's personal lawyer (who hates it when you call his client "Stevie") did not immediately return a request for comment. And, again, the Wells notice doesn't necessarily mean anyone will be charged. Unfortunately, we might not know the outcome for several months.

But, there's a good chance that the Wells notice means the government feels it has goods of some sort on SAC and/or Cohen, particularly in light of the Martoma allegations. If so, then the government might have in its sights the biggest target yet in its insider-trading whale hunt, bigger even than its top prize so far, former Goldman Sachs Director Rajat Gupta.

Cohen, 56, has become a larger-than-life figure. His status as nearly a household name is not only thanks to his wildly successful hedge fund -- which has turned a startup nut of $25 million into $13 billion in 20 years. It's not just because of his wealth -- at $8.8 billion at last count, making him the 38th-richest person in the United States , according to Forbes.

Cohen has also become something of a symbol of Wall Street excess. Here are just a few of the jaw-dropping facts that have made Cohen stand out from his peers:

His Obscenely Huge House: Cohen has a 35,000-square-foot palace in Greenwich, Conn., that has reportedly made even other billionaires squirm. The grounds, with an impressive size and scope you can see in this Google Maps satellite image published in The New York Times, include an ice rink with a Zamboni and large works of art, including Jeff Koons' Balloon Dog (Yellow). But this house was not quite big enough for Cohen; he tried to expand it a few years back, making the locals squirm, The Times reported.

His Kind-Of-Gross Art Collection: In addition to the Koons Balloon Dog, Cohen owns many large and expensive works of art, most notably Damien Hirst's "The Physical Impossibility of Death in the Mind of Someone Living," which is a tiger shark preserved in a tank of formaldehyde. He also owns Marc Quinn's "Self," a bust of Quinn's head composed of several liters of Quinn's frozen blood. Who's hungry for slushies?

His Baseball Aspirations: Cohen owns a stake in his favorite baseball team, the New York Mets, and also made an unsuccessful bid to buy the Los Angeles Dodgers. He also reportedly flirted with the idea of buying the Padres. If you are a fan of a baseball team, there is probably at least a one-in-ten chance that Cohen owns or has considered owning your favorite team.

His Messy Divorce: Cohen is twice-married, with seven children by the two marriages. Unfortunately, the first marriage continues to be a bit of a problem, court-wise, with his ex-wife earlier this year accusing him of hiding assets during their 1990 divorce.

The Thing With The Female Hormones And The ... I Just Can't ...: And then there's this bit of absolute craziness: A former analyst at SAC claimed his supervisor (not Cohen) made him take female hormones and wear women's clothing in order to decrease his overly aggressive male instincts and make him a better trader. And these are just the nice allegations. The trader also alleged that his superior constantly abused him verbally and sexually, including forced oral sodomy and golden showers. So there's that!

Beyond all this, though, Cohen and/or SAC might be an interesting target of the government's insider-trading probe for another reason: He could be a good test case for what the heck "insider trading" is supposed to be, exactly, and just how investors are supposed to avoid it. Cohen himself has called insider trading rules "very vague," and some have suggested they're pointless in a free market -- where insiders trade all of the time, pretty successfully.

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