SAC Capital and the Art of Halting an Investor Stampede

 SAC Capital and the Art of Halting an Investor Stampede

The PR Verdict: “A” (PR Perfect) for SAC Capital. (Pictured: Steven Cohen)

The clock is ticking for SAC Capital Advisors, the hedge fund run by Steven Cohen, now linked to an insider trading case that the government is touting as one the largest of its kind. As regulators are said to be “closing in” on the fund, SAC clients, whose money is managed by the firm, now have 90 days to decide if they’ve had enough and want their money back. Should they redeem, or keep their money there?

SAC, which manages over $14 billion, recently confirmed to investors that the firm might face civil charges over the alleged insider trading scheme that has already led to the arrest of a former employee. Normally, news like this would have investors rushing for the exits, provoking a disastrous run on the fund. But if the firm intends to emerge from its latest legal worries with an ongoing business, reassuring investors while being transparent about its legal woes is the immediate PR challenge.

Not all investors are happy; some have indicated they want to redeem. One French bank has reportedly cashed in its chips already. But other large investors are on the record as saying they will reserve judgment and keep their money with SAC, reiterating their faith in the firm and its management. To SAC investors wavering about what to do, public confirmation from co-investors that their money is staying put is just the sort of signal they’re looking for. At the moment, some clever PR is calming a situation that could otherwise become very risky.

The PR Verdict: “A” (PR Perfect) for SAC Capital. Endorsement from others is always better than tooting your own horn.

The PR Takeaway: If you want the message about you to be heard, let your friends say it. SAC ‘s recent coverage contains a surprising number of reputable and well-known investors confirming that they are sticking with the firm – at least, for the moment. For SAC management seeking to reassure investors, it’s the best sort of message, and one that it couldn’t deliver itself.

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Ask (and Pay) An Expert

 Ask (and Pay) An Expert

The PR Verdict: “D” (PR Problematic) for the “expert network” industry.

When in doubt, consult an expert, goes the familiar refrain. But in the case of hedge fund SAC Capital Advisers, seeking the advice of experts is proving to complicate matters, particularly when it comes to allegations of insider trading. The infamous hedge fund run by the notorious Stevie Cohen is under the media and regulatory glare as prosecutors claim to be “closing in” on a multi-year investigation.

At the heart of the current case filed last week is the role of “expert network” firms, i.e. consultancies that match money managers like SAC with experts in particular industries for research and information gathering purposes. Two former SAC employees have already admitted to insider trading, citing information gleaned from expert network firms. In SAC’s most recent woes, a professor of neurology, overseeing clinical trials for a new Alzheimer’s drug, was also contracted by an expert network firm to give SAC his professional insights.

As the case goes to trial, the PR dilemma will be how to characterize what was being paid for. Given that the retained fees were high (in this case, over $100K), the understandable assumption will be that the information flow amounted to more than just general insights. Expert firms are going to have a tough time explaining to a skeptical public what sort of advice their fees provide.

The PR Verdict: “D” (PR Problematic) for the “expert network” industry. There’s trouble ahead.

The PR Takeaway: Money and freely-available public information don’t mix. The PR dilemma is how to explain why hedge funds are paying substantial fees for insights that the experts claims are non–privileged and already publicly available. When in-house experts are moonlighting from the public companies that they work for, then the suggestion of insider information inevitably raises its head. So far, the traditional PR answer has been to characterize the information flow as insights, not hard information. But as insider trading cases continue to mount, that distinction is going to seem less and less believable. In this case, clever wording won’t be enough to save the day.