Over the past week, Cohen, long envied on Wall Street for his years of double-digit returns, has absorbed a one-two punch as yet another of his former managers was arrested on insider trading charges and U.S. securities regulators warned they may file civil charges against his 20-year-old hedge fund firm.

For many managers, this kind of news would have been personally devastating and might have prompted a retreat.

But if anyone thought the 56-year-old billionaire might use the heightened regulatory scrutiny as reason to retire early and close up shop, they are mistaken.

That is the message Cohen conveyed to investors on a call last Wednesday. Employees of SAC heard from him a day later. These people said it is business as usual at Stamford, Connecticut-based SAC, where employees have grown accustomed to drawing scrutiny from federal authorities for several years now.

To date, federal authorities have charged or implicated seven former employees of SAC Capital with insider trading while working at the firm, but have not alleged any wrongdoing by Cohen himself.

PERSONALLY SIGNED OFF

The criminal and civil charges filed on November 20th against Mathew Martoma come closest to Cohen because authorities allege the SAC Capital owner personally signed off on the trades by Martoma that generated profits and avoided losses totaling $276 million.

But securities lawyers said the government may have a tough time finding evidence that Cohen knew Martoma had relied on illegal information to trade, and that may bolster Cohen's resolve not to make any radical changes at SAC.

And his results remain good. His main fund has returned 10 percent this year, while hedge funds on average have risen only 5 percent according to industry tracker HFR.

"Managing hedge funds is in Steve Cohen's blood," said Don Steinbrugge, managing partner at Agecroft Partners, a hedge fund industry consulting and marketing firm. "He is one of the most successful managers in the history of the industry. I would expect him to fight the accusations with all of the energy he has."

The early indications are that most of Cohen's outside investors, which include an investment fund managed by private equity firm Blackstone Group, aren't looking for the exits. His 900 employees also don't appear ready to move on either, according to investor sources and Wall Street headhunters.

One investor said he was reassured when SAC President Tom Conheeney emphasized on Wednesday's call that the possible charges would be civil and not criminal, giving the investor the feeling that the accusations of insider trading may not be as "big a deal as it was being made out to be."

The firm declined to comment beyond the statement made following Martoma's arrest. In that statement, the firm said: "Mr. Cohen and SAC are confident that they have acted appropriately."

FORTUNE

Before the investor call, there had been some speculation on Wall Street that Cohen might tell investors he planned to return their money.

With outside investors making up only 40 percent of the fund's assets, Cohen could easily follow in the footsteps of elder industry statesmen George Soros and Carl Icahn and convert his firm into a family office where he invests only his personal fortune. At least $6 billion of SAC Capital's money is believed to be Cohen's.

Certainly, Cohen, doesn't need to keep working for other investors. Twice married, and with seven children, he has a personal fortune estimated at $8.8 billion as of September this year, according to Forbes.

In recent years, he's become an avid art collector, with a number of Jeff Koons sculptures gracing the grounds of his 30-room mansion in Greenwich, Conn. Cohen, who grew up on Long Island in Great Neck, New York, is also pursuing the kind of charitable legacy building done by other famous Wall Street money managers. In 2010, the North Shore-LIJ's pediatric hospital was renamed the Steven and Alexandra Cohen Children's Medical Center of New York, after Cohen and his second wife in recognition of their donations.

More recently, he took a minority ownership stake in the New York Mets baseball team after failing to win the rights to buy another team, the Los Angeles Dodgers.

But people who know Cohen say that even while he has scaled back his involvement some in the firm's day-to-day trading, he's not the kind of person to leave it all behind.

That's even more the case with the Securities and Exchange Commission and the Federal Bureau of Investigation continuing to look into allegations of improper trading at SAC Capital -something the FBI has been doing since 2007.

SOURCE OF INFORMATION

In the complaint against Martoma, the fund manager who allegedly used illegal tips from a doctor to sell shares in two healthcare companies and save SAC roughly a quarter of a billion dollars in losses, the government said Cohen was intimately involved in the sales.

Securities defense lawyers said that one important thing that was absent from the complaint was evidence suggesting Cohen knew the source of Martoma's information.

"The SEC and the government have had quite a bit of success against some of the insider trading cases they've prosecuted. But the SEC has also been taking a lot of hits in recent years," said Stephen Plotnick, a partner at law firm Carter Ledyard & Milburn.

The government said Martoma and Cohen spoke by telephone on a Sunday in the summer of 2008 about Martoma's plan to sell SAC's holdings in Elan and Wyeth, now owned by Pfizer.

For Cohen's managers, calls on Sunday afternoons are nothing unusual, and are in fact a regular part of the job. The work week at SAC generally begins then with rigorous grillings from Cohen about managers' "best ideas" and strongest convictions on stocks and other securities.

People who know Cohen said given the magnitude of the position Martoma was moving, it would be impossible for the boss not to be personally involved in the trade. Martoma earned a $9.3 million bonus in 2008, based largely on his success in trading Elan and Wyeth.

There's no evidence in either the criminal complaint or civil complaint filed by the SEC that Martoma told Cohen how he came to his decision to recommend reversing the hedge fund's view on Elan and Wyeth and why he had soured on the clinical drug trial being conducted by the two companies on an Alzheimer treatment drug.

While these people familiar with the firm, some of whom used to work for Cohen, said the manager would want to know the rationale for the decision, it's possible that Martoma simply said it had come from an industry consultant he had been working with.

If the government were to bring a case against SAC, it would have to offer up a raft of evidence to win, the lawyers said. Even if Martoma were to take a plea and cooperate, something he does not seem inclined to do, his testimony alone might not be enough to pursue a case against Cohen.

"They'll need documents," said Plotnick. "Juries like documents. You can attack people for cooperating with the government in various ways, but documents are another thing."

(Reporting By Svea Herbst-Bayliss, Katya Wachtel and Emily Flitter; Editing by Matthew Goldstein, Jennifer Ablan, Martin Howell and Diane Craft)

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