SAC Capital Advisors LP’s clients pulled $1.68 billion from hedge fund as Steven A. Cohen’s firm is being investigated for alleged insider trading, according to a person familiar with the matter.

The hedge fund had more than $15 billion in assets under management at the start of the year, said the person, asking not to be named because the information is private. SAC told some employees and advisors last month it expected client redemptions of at least $1 billion.

Clients account for about 40 percent of SAC’s assets under management and the rest is from Cohen and his employees. SAC this week reached a deal with Blackstone Group LP that gives all clients three more months to decide whether to stay in the fund.

The hedge fund was told by the U.S. Securities and Exchange Commission in November that the agency is considering pursuing civil fraud claims against it, related to alleged insider trading in two drugmakers by former portfolio manager Mathew Martoma. Blackstone, one of the biggest investors in SAC, with about $550 million in the fund, will leave most of the money in place for at least another quarter under the new liquidity agreement, it said yesterday in a statement.

The new terms give SAC investors time to see if the fund and its billionaire founder are charged as part of a multiyear government probe that has already linked at least eight current or former employees to allegations of insider trading at the firm.

New Terms

Clients faced a deadline of yesterday to tell SAC, which is based in Stamford, Connecticut, if they wanted to start the process of withdrawing all their money by the end of the year. Under existing rules, they could redeem 25 percent of their assets from the firm each quarter.

Now, SAC is telling investors they can wait until mid-May to make the decision. At that time, they can redeem a third of their money each in the second, third and fourth quarters.

“While we submitted redemptions for certain accounts as appropriate, BAAM successfully preserved flexibility for our clients by extending our decision time line,” Peter Rose, a spokesman for New York-based Blackstone, said in the statement. BAAM is the firm’s hedge-fund unit, Blackstone Alternative Asset Management.

Blackstone negotiated the new terms with the hedge fund over the past week, said people familiar with SAC, who asked not to be named because the firm is private. SAC obtained board approval within two days of the redemption deadline, they said.

Martoma Case

The allegations against Martoma marked the first time prosecutors linked Cohen to trades at the center of an insider case. Blackstone and other SAC investors are awaiting more news on the criminal case against Martoma, who was arrested on Nov. 20 for playing a key role in what prosecutors called a record- setting insider-trading scheme that netted as much as $276 million in profits and averted losses.

Martoma, 38, who worked at SAC’s CR Intrinsic unit, discussed two drug stocks with Cohen in 2008, advising him to sell shares before bad news about a drug’s prospects was announced, according to the government, which referred to the “hedge-fund owner” in court papers. The five-year statute of limitations covering trading in the shares expires at the end of July. Martoma pleaded not guilty to illegal trading at a court hearing in New York last month. Cohen, 56, hasn’t been accused of any wrongdoing.

“We will use this period of time to evaluate all additional information which becomes available,” said Blackstone’s Rose.

Protecting Clients

Jonathan Gasthalter, a spokesman for SAC, yesterday declined to comment on the new liquidity option. He has previously said that Cohen is confident he has acted appropriately and that SAC continues to cooperate with the government’s inquiry.

Cohen agreed not to pull his money, and the firm updated its fund documents to say it would indemnify clients against disgorgement of illegal profits and legal fees, the people said.

SAC’s main fund returned 2.5 percent in January, after climbing 13 percent last year. SAC has produced average annual gains of about 25 percent since its 1992 inception.

Among the clients saying they would withdraw money are Citigroup Inc.’s private bank, which has about $187 million with the hedge fund, and Societe Generale SA’s Lyxor Asset Management unit.

The government’s insider-trading probe has caused massive redemptions at other multibillion-dollar firms, including Level Global Investors LP, Diamondback Capital Management LLC and FrontPoint Partners LLC, which ultimately liquidated.