SAC Capital Advisors LP founder Steven Cohen will remain under federal investigation even if prosecutors miss a late July deadline for charging him in the largest insider-trading case in history, a person familiar with the probe said.

Cohen, 57, probably won’t face charges over July 2008 trades triggered by his then-portfolio manager Mathew Martoma, the Wall Street Journal reported last week. Martoma is accused of recommending that SAC sell shares of two drug companies, based on an illegal inside tip he received.

The five-year statute of limitations deadline for prosecutors to bring charges against Cohen for a series trades sparked by Martoma’s tip expires July 29 at the latest. Prosecutors have insufficient evidence against Cohen to charge him in that matter, the newspaper said without identifying its sources.

Cohen, whose Stamford, Connecticut-based firm manages $15 billion, isn’t out of the woods legally should prosecutors fail to persuade Martoma, 39, to testify against his former boss, or come up with other evidence by the end of the month, according to the person, who asked not to be identified because of the confidential nature of the investigation.

The Martoma transactions netted Cohen’s firm $276 million, according to Martoma’s indictment.

Other Trades

If the five-year-statute of limitations isn’t satisfied in the Martoma case, U.S. investigators will continue to probe other SAC trades including its sale of Dell Inc. stock in August 2008, the person said. To get around statutory limits, prosecutors could eventually charge Cohen with conspiracy if they either find evidence he took even a small step in furthering a continuing insider scheme within five years of the trading or by linking unrelated insider trading acts, said Douglas Burns, a former federal prosecutor in New York who isn’t involved in the SAC case.

“The overt act could be an e-mail, a phone call or something which is part of the conspiracy and furthers it,” Burns said.

“Conspiracy is the best friend of the government,” said Burns, who defended a case in which U.S. prosecutors charged his client with participating in an ongoing conspiracy involving two alleged crimes eight years apart.

If statutory deadlines are missed, “there’s no such thing as popping champagne when creative conspiracies can be created,” Burns said. “Since there are other SAC trades that go later than July 2008, Cohen still has to worry about potential charges. Very often federal prosecutors connect the new trades with the old, call it one continuing conspiracy and can very effectively bring the old conduct into play without running afoul of the statute of limitations.”

SAC Comment

Jonathan Gasthalter, a spokesman for SAC at Sard Verbinnen & Co., declined to comment. Peter Donald, a spokesman for the Federal Bureau of Investigation in New York, didn’t respond to e-mail requests for comment. Jennifer Queliz, a spokeswoman for Manhattan U.S. Attorney Preet Bharara, whose office has been overseeing the probe, declined to comment.

Federal prosecutors in New York have charged 83 people and won 73 convictions of those accused of using inside information to trade. Nine former or current SAC employees have been linked to insider trading. Cohen hasn’t been charged in a crackdown that became public with the arrest of Galleon Group LLC co- founder Raj Rajaratnam in October 2009.

Self-Incrimination

Cohen, who refused to testify before a U.S. grand jury investigating SAC trades, has denied wrongdoing since prosecutors in November arrested Martoma in what they called the biggest insider-trading scheme ever. He and his fund have been investigated by the FBI since at least 2007 and haven’t been accused of wrongdoing, court records show.

According to prosecutors, SAC, following a July 20, 2008, 20-minute phone call from Martoma to Cohen, sold shares in Elan Corp. and Wyeth LLC, now a unit of Pfizer Inc. Martoma allegedly got an illegal tip about disappointing results in a clinical trial for a drug to treat Alzheimer’s disease that both companies were developing. SAC paid a record $602 million to settle a Securities and Exchange Commission case over the trades, without admitting or denying wrongdoing.

Martoma, who has pleaded not guilty, is scheduled to go on trial in Manhattan federal court in November. As part of their probe into SAC, prosecutors have interviewed Tom Conheeney, SAC’s president; Steve Kessler, head of compliance; Phillipp Villhauer, head trader; and Chief Operating Officer Solomon Kumin, according to second person familiar with the matter.

Plan B

Without some Martoma turnabout in the next two weeks, prosecutors and the FBI will have to focus on other SAC transactions in their effort to charge Cohen.

In one pending criminal case, prosecutors said SAC e-mails show trader Michael Steinberg, 41, traded on inside tips funneled from his analyst Jon Horvath, which were obtained from a Dell employee about negative financial results reported in late August 2008. Prosecutors claim that shortly after, SAC units netted almost $4 million by betting against shares in the computer maker. One 2008 e-mail shows Cohen was consulted about the trades after his portfolio managers disagreed about Dell’s probable earnings.

Prosecutors haven’t disclosed any evidence to show that Cohen knew the Dell assessments stemmed from illegal tips or that he sold shares using inside information about the computer maker’s earnings.

Steinberg, who faces insider trading charges related to the transaction, has pleaded not guilty. Horvath, who pleaded guilty last year to securities fraud and conspiracy, is cooperating with prosecutors and may testify against Steinberg, prosecutors said.

New Deadline

Other trades being investigated would give the government until around 2016 to make a case against Cohen. The U.S. has been investigating the firm’s trading in InterMune Inc. and Weight Watchers International Inc., a person with knowledge of the matter said in December.

Neither SAC Capital nor Cohen has been accused of any wrongdoing in relation to InterMune or Weight Watchers.

The government also retains a fall-back option that could close down SAC and ban Cohen from the securities industry even without a criminal case.

On Nov. 20, SAC received a notice from the SEC warning that the agency planned to sue the firm for securities fraud and control-person liability unless the hedge fund could persuade it not to. A person familiar with the matter said Cohen himself might be added to the notice at some point.

With nine SAC employees linked to illegal insider trading, Cohen could be sued for negligent supervision of his staff regarding securities fraud. Penalties in a settlement or after a trial could include Cohen’s being barred from the securities industry and a shuttering of his firm.

The Martoma case is U.S. v. Martoma, 12-cr-00973, U.S. District Court, Southern District of New York (Manhattan).