(Bloomberg News) Citigroup Inc.’s private bank is advising clients not to add money to Steven A. Cohen’s hedge fund SAC Capital Advisors LP, according to two people with knowledge of the matter.

Citigroup made the decision after the Nov. 20 arrest of a former SAC portfolio manager in what prosecutors called the most-lucrative insider trading scheme ever discovered, said one of the people, who asked not to be named because the information is private. It’s typical for the New York-based bank to put firms on its so-called watch list if they have received a large amount of news coverage, this person said.

The U.S. Securities and Exchange Commission last month told SAC, which manages $14 billion, that it is considering pursuing civil fraud claims against the fund related to the alleged insider trading, three people with knowledge of the matter said last week. The allegations mark the first time prosecutors linked Cohen to trades at the center of an insider case.

Danielle Romero-Apsilos, a spokeswoman for Citigroup, declined to comment on the news, which was reported earlier today by CNBC.

Jonathan Gasthalter, a spokesman for Stamford, Connecticut- based SAC, declined to comment. He said last month that Cohen and SAC are confident that they acted appropriately and will continue to cooperate with the government’s inquiry.

Lyxor Pulls

Societe Generale SA’s Lyxor Asset Management unit has asked to withdraw its clients’ funds from SAC, a person with knowledge of the situation said on Dec. 3. Lyxor’s investments in the hedge fund are very limited, the person said.

Blackstone Group LP is monitoring how the government proceeds with respect to SAC and will make a decision accordingly, J. Tomilson Hill, who oversees the New York-based firm’s $46.2 billion hedge fund investments, told Bloomberg Television’s Cristina Alesci in an interview today.

SAC clients can only pull 25 percent of their investment every quarter after giving 45 days’ notice, meaning it would take them a year to redeem in full. The next deadline for putting in a redemption notice is mid-February.

Prosecutors said last month that Mathew Martoma, a former portfolio manager at a unit of SAC, used inside information from a clinical trial to trade in shares of two health-care companies in 2008. SAC reaped $276 million in profits and averted losses, according to the prosecutor’s complaint against Martoma and a related civil case filed by the SEC.

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