DealBook: SAC Capital Said to Face Insider Trading Inquiry

Steve Marcus/ReutersSteven A. Cohen’s firm, SAC Capital Advisors, is under scrutiny.

The Securities and Exchange Commission is investigating whether trades in health care stocks by the hedge fund SAC Capital Advisors as recently as last year were made using inside information, a person briefed on the matter said Wednesday.

The investigation comes as SAC, one of the most prominent hedge funds in the world with $12 billion in assets under management, has become something of a focal point for authorities. Two former SAC portfolio managers have pleaded guilty to criminal charges of using inside information to trade technology stocks.

And Senator Charles E. Grassley, Republican of Iowa, has questioned how the S.E.C. handled referrals from Wall Street’s self-regulator, the Financial Industry Regulatory Authority, regarding 20 stock trades by SAC.

But the S.E.C.’s investigation into trading by SAC appears to be much broader. In addition to the inquiry into trading in health care stocks — trades that took place from at least 2007 through 2010 — the agency is examining SAC’s use of expert network firms, companies that connect Wall Street investors with outside experts in various industries, the person briefed on the matter said.

Separately, the S.E.C. is looking into whether the hedge fund used inside information about the 2007 takeover of MedImmune, a biotechnology company, the person said. The Wall Street Journal earlier reported about the inquiry into MedImmune.

A spokesman for the S.E.C. declined to comment.

Neither SAC nor its billionaire founder, Steven A. Cohen, has been accused of wrongdoing by the S.E.C. or by any other authority. A spokesman for SAC declined to comment on Thursday.

The inquiries into the SAC trades are part of an accelerating effort by the S.E.C. and the United States attorney’s office in Manhattan to crack down on insider trading, with a particular focus on hedge funds. The criminal investigations by federal prosecutors have resulted in charges against 49 people, 39 of whom have pleaded guilty.

Two people who have pleaded guilty were the former SAC employees Noah Freeman and Donald Longueuil. Mr. Freeman is expected to testify Thursday at the trial of Winifred Jiau, a consultant for an expert network firm who is charged with leaking inside information. SAC has said that it is “outraged” by the conduct of the two former employees.

The cases against Mr. Freeman and Mr. Longueuil are part of the government’s examination of expert network firms, which developed over the last decade alongside the proliferation of hedge funds. The government has filed criminal charges against 13 people connected to the firms, eight of whom have pleaded guilty.

The former SAC employees admitted to obtaining inside information about public companies and then using it to make profitable trades. The charges against the men detailed a cover-up straight from a television drama that involved destroying a hard drive with pliers and spreading the parts throughout the city.

Others with past ties to SAC have also been ensnared in the insider trading investigation. Earlier this year, Federal Bureau of Investigation agents raided two hedge funds founded by former SAC executives, Level Global Investors and Diamondback Capital Management. In 2009, Richard Choo-Beng Lee pleaded guilty to insider trading related to activity after he left SAC.

The S.E.C. has faced criticism that it failed to bring significant cases against prominent hedge funds as well as cases stemming from the financial crisis.

In April, Senator Grassley asked the Financial Industry Regulatory Authority in a letter to provide information on the “potential scope of suspicious trading activity” at SAC.

Last month, he followed up with a letter to the S.E.C. requesting to know how it handled past referrals about SAC’s trading activity.

MedImmune is not among those trades referred by Finra, according to people briefed on the matter.

SAC executives including Peter Nussbaum, the firm’s general counsel, and its outside lawyers met with staff members in Mr. Grassley’s office to discuss his inquiry.

Additionally, federal prosecutors are examining trades in an account overseen by Mr. Cohen.

Court filings related to the cases of the two former SAC portfolio managers who have pleaded guilty to insider trading, indicate that the government is reviewing trades made in Mr. Cohen’s account at the suggestion of the former employees.

View the original article here

Google Says Hackers in China Stole Gmail Passwords

In a blog post, the company said the victims included senior government officials in the United States, Chinese political activists, officials in several Asian countries, military personnel and journalists.

It is the second time Google has pointed to an area of China as the source of an Internet intrusion. Its latest announcement is likely to further ratchet up the tension between the company and Chinese authorities.

Last year, Google said it had traced a sophisticated invasion of its computer systems to people based in China. The accusation led to a rupture of the company’s relationship with China and a decision by Google not to cooperate with China’s censorship demands. As a result, Google decided to base its Chinese search engine in Hong Kong.

The more recent attacks were not as technically advanced, relying on a common technique known as phishing to trick users into handing over their passwords. But Google’s announcement was unusual in that it put a spotlight on the scale, apparent origins and carefully selected targets of a coordinated campaign to hijack e-mail accounts.

Google said that once the intruders had logged into the accounts, they could change settings for mail forwarding so that copies of messages would be sent to another address. The company said it had “disrupted” the campaign and had notified the victims as well as government agencies. Executives at Google declined to comment beyond the blog post. The company recommended that Gmail users take additional security steps, like using a Google service known as two-step verification, to make it more difficult to compromise their e-mail accounts. But it emphasized that the password thefts were not the result of a general security problem with Gmail.

Google acknowledged that it had been alerted to the problem in part by Mila Parkour, a security researcher in Washington who posted evidence of a type of phishing attack on her blog in February. She documented examples of what has recently been described as a “man-in-the-mailbox” attack, in which the intruder uses the account of one victim and his e-mail contacts to gain the trust of a new victim.

Ms. Parkour wrote that the method used in this attack “is far from being new or sophisticated,” but that she was posting information about it because of “the particularly invasive approach of the attack.”

She highlighted a fake document titled “Draft US-China Joint Statement” that was circulated among people with e-mail accounts at the State Department, the Defense Department, the Defense Intelligence Agency and Gmail. Clicking to download the document directed users instead to a fake Gmail log-in page that captured their passwords.

Caitlin Hayden, a spokeswoman for the National Security Council, said the White House was looking into the matter.

“We have no reason to believe that any official U.S. government e-mail accounts were accessed,” Ms. Hayden said in an e-mail.

Google said the attacks apparently originated in Jinan, a provincial capital in eastern China. The city is a regional command center for the Chinese military, one of seven in the country. It is also home to the Lanxiang Vocational School, which was founded with military support. Last year, investigators looking into the attack on Google’s systems said they had traced some of the hacking activity back to the school.

At the time, government and school officials strongly denied any connection with the attack, and China’s foreign ministry said linking the Chinese authorities to such attacks was “baseless, highly irresponsible and hype with ulterior motives.”

That earlier attack appeared to be aimed at gathering information on human rights activists who were involved in political campaigns aimed at China. It was part of a wave of attacks that hit a range of American companies beginning in mid-2009 and that was first publicly disclosed by Google in January 2010.

Chinese government media officials were not immediately available to comment on Google’s latest announcement.

Rafal Rohozinski, a network security specialist at the SecDev Group in Ottawa, said it was impossible to lay blame for the campaign on the Chinese government with any certainty. Because of the borderless nature of the Internet, it is easy for intruders to connect through a series of countries to mask their identities. “The fact that someone is harvesting Gmail credentials is not surprising,” Mr. Rohozinski said.

This year, the Chinese government has stepped up its controls over the Internet within the country, with increased scrutiny of news and blog sites, particularly in the wake of political upheaval in North Africa and the Middle East.

The government has also apparently crippled some virtual private network services, or VPNs, which have been used by Chinese and expatriates to gain access to corporate e-mail or get around controls that block many Web sites from being entered in China, like YouTube, Facebook and Twitter.

Security specialists said the Google warning to users was an indication that efforts to place the responsibility for Internet security on individuals was failing.

“I think this is impossible to solve by going to one user at a time and trying to teach them how to behave on the Internet,” said Nir Zuck, founder and chief technology officer of Palo Alto Networks. “It doesn’t matter how much education you put into it — you will always have end users that will make a mistake.”

John Markoff reported from San Francisco and David Barboza from Shanghai.

View the original article here

Fighting Spreads in Yemen, Raising Fear of Civil War

The violence here has transformed a largely peaceful uprising into a tribal conflict with no clear end in sight. The United States and Yemen’s Arab neighbors like Saudi Arabia, which have tried and failed to mediate a peaceful solution to the country’s political crisis, are reduced to sitting on the sidelines and pleading for restraint.

The bloodshed also threatens to unleash a humanitarian catastrophe, as Yemen, already the poorest country in the Arab world, runs desperately low on gasoline, cooking oil and other basic supplies. It also raises fears that Islamic militants who use Yemen as a base will have even freer rein to operate in the country.

The rising chaos has become a major concern for the White House, which announced Wednesday that John O. Brennan, President Obama’s top counterterrorism adviser, would be traveling to Saudi Arabia and the United Arab Emirates this week to discuss “the deteriorating situation in Yemen.”

On Wednesday afternoon, tanks and armored vehicles could be seen rolling into Sana, the capital, from the south. The streets of Sana were largely empty, as residents fled for the safety of surrounding villages. Exploding artillery shells and sporadic machine-gun fire could be heard across the city.

Despite his repeated public offers to step aside to ease the crisis in the country, Yemen’s authoritarian president, Ali Abdullah Saleh, appeared to be gearing up for a major assault on the Ahmar family, the tribal rivals and political opposition leaders he has been battling for 10 days.

“This is the worst fighting we have seen since 1994,” when Yemen fought a two-month civil war, said one Yemeni official, who spoke on the condition of anonymity under diplomatic protocol. “And it’s the worst fighting in Sana since the civil war of the 1960s.” Some estimates of the death toll in fighting late Tuesday and early Wednesday ranged as high as 41 on both sides. All told, at least 120 people have been killed since the violence began early last week. A brief cease-fire struck over the weekend collapsed on Tuesday, with each side blaming the other.

In recent days, the government’s tenuous hold has slipped further outside the capital, as tribal fighters and Islamist militants seized a major coastal town in the south, and tribesmen took over critical checkpoints east of Sana. The city of Taiz, south of the capital, remained in a state of lockdown, days after government forces and plainclothes gunmen opened fire on a vast crowd of peaceful protesters who had been holding a sit-in for months. Dozens of people were killed, according to witnesses and human rights groups, and the episode provoked condemnations from the United States and other countries.

In the capital, government security forces have tried in recent days to disrupt a similar peaceful sit-in by protesters that has lasted for months. But Maj. Gen. Ali Moshin al-Ahmar’s troops have protected them. Most of the protesters in Sana and in cities across Yemen have held fast to their belief in nonviolent resistance, but some have begun to call for war against Mr. Saleh, especially after the massacre in Taiz.

“For me and others like me here in the square, we are convinced that peaceful means would not work, since they did not work over these last four months,” said Ahmed Obadi, a young protester and teacher.

The forces arrayed against the government have diverse and sometimes conflicting agendas, but the rising chaos appears to have emboldened them all, including the Yemen-based group that calls itself Al Qaeda in the Arabian Peninsula, which has become a major concern for the United States.

Nasser Arrabyee reported from Sana, and Robert F. Worth from Washington. J. David Goodman contributed reporting from New York, Laura Kasinof from Washington and Khaled Hammadi from Sana.

View the original article here