SAC Capital won't fully cooperate with government: letter By Emily Flitter and Katya Wachtel NEW YORK (Reuters) - Steven A. Cohen's hedge fund SAC Capital Advisors told investors on Friday it would no longer cooperate "unconditionally" with the U.S. government's insider trading investigation. In a brief letter to investors, the $15 billion hedge fund did not elaborate but said it believes the next few months will be critical in the investigation. The firm said that "over the coming months there will be more clarity about the outcome of these matters." The letter, which an investor in the fund who did not want to be identified read to Reuters over the telephone, also said while SAC believes in transparency, it may not be able to give frequent updates to investors. "In the past we have tried to be as transparent as possible," the fund said. But SAC Capital added that going forward it may "need to keep details confidential." SAC's letter to investors comes a few weeks before outside investors have to notify Cohen and his fund whether they intend to redeem some of their money before the end of the second quarter on June 30. The hedge fund extended the deadline for submitting redemption requests to June 3 from May 16. In the first quarter of this year, outside investors submitted notices to redeem up to $1.7 billion. The investor in the fund said he was not concerned by SAC's announcement. He added that the fund is up 5.96 percent so far this year. An SAC spokesman declined to comment. A spokesman for Blackstone Group, the largest outside investor in SAC Capital with roughly $500 million in client money invested, declined to comment. "This is not going in a good direction," said C. Evan Stewart, a partner at Zuckerman Spaeder in New York who has no connection to the case. In the middle of one of these situations when you reverse course and instead of embracing transparency you go in the other direction, that's not a good sign for the purposes of resolving your conflict with the government. The government's investigation into allegations of insider trading at Cohen's fund has been heating up over the past several months. But the firm also came close to settling a suit against it by the U.S. Securities and Exchange Commission for failing to adequately supervise its employees. SAC and the SEC reached a settlement agreement for a record sum of $616 million, but the judge on the case did not grant unconditional approval to the proposal. In March, the firm agreed to pay the $616 million penalty to settle a lawsuit arising from one of the investigations. The indictment in March of Michael Steinberg, the most senior employee of SAC to be charged with insider trading, put further heat on Cohen's hedge fund. Steinberg, who pleaded not guilty to five counts of conspiracy and securities fraud, will begin his criminal trial on November 18. Steinberg has been on paid leave from the firm after his suspension from SAC Capital's Sigma Capital division last year. Friday's announcement could reflect new attempts to strategize about the settlement as both SAC and the SEC wait for clarity about its approval. Or it could be a defensive move to keep SAC from being accused of withholding material information, legal experts said. Cohen also recently told investors that, beginning next year, the hedge fund would claw back compensation from employees who are found to use illegally obtained information in making trades. SAC began changing the terms of its redemption policy following the November 2012 arrest of Mathew Martoma, a former portfolio manager at CR Intrinsic Investors, one of SAC's funds. Martoma was charged with trading shares of Elan Corp. and Wyeth, which is now owned by Pfizer, based on non-public information. The most recent extension of the withdrawal deadline followed an easing of liquidity terms for investors. SAC clients who waited to redeem from the fund in the second quarter would be treated no differently than ones who redeemed in the first three months of the year. That is, investors who took requested money back in either the first or second quarter will get their money back by year end. Those more favorable redemption terms were made available to all the fund's investors after SAC first negotiated the deal with the Blackstone Group LP, one of Cohen's largest outside investors. Reporting by Emily Flitter and Katya Wachtel; Editing by Matthew Goldstein, Gary Hill and David Gregorio