(Bloomberg) -- Steven A. Cohen’s firm will stop collecting employees’ best trading ideas for a central investment pool and rewarding them with a special bonus, a practice that the U.S. government said created wrong incentives at his former hedge fund SAC Capital Advisors LP.

Point72 Asset Management LP, the successor firm to SAC, will end the “tagging” of new investment ideas immediately and unwind existing trades by the end of the year, the firm said in an employee memo yesterday, a copy of which was obtained by Bloomberg News.

The move is the latest in a series of management and organizational changes at Cohen’s firm, after SAC paid a record fine to settle U.S. charges of insider trading and Cohen agreed to stop managing money for outside clients. Money managers and analysts at SAC vied for the attention of the billionaire by submitting their best trade ideas to a central investment pool, known as the “Cohen Account.” They were paid an extra bonus if their ideas were tagged and they were profitable.

“The government cited tagging prominently in its case against SAC and the cases brought against its employees, believing tagging created an incentive for an employee to seek improper information in the hope of receiving a ‘tag bonus,’” Douglas Haynes, president of Point72, said in the memo.

Prosecutors had described SAC as “a veritable magnet for market cheaters” and said the hedge fund firm had an insider- trading scheme that spanned more than a decade. SAC stopped managing client money this year and paid $1.8 billion to settle U.S. allegations of securities fraud.

‘Reputational Risk’

Cohen, who has denied wrongdoing and isn’t charged with a crime, is the subject of an administrative proceeding by the U.S. Securities and Exchange Commission that alleges he failed to supervise two senior employees. Prosecutors in August asked the SEC to delay its proceeding against Cohen for a second time because criminal cases against his former employees were continuing.

Haynes said that Point72 has spent the year making changes to be a “great family office, adhering at all times to professionalism and the highest ethical standards.”

“While there are financial benefits to having Sector Heads identify and leverage the best ideas in the firm, ending tagging reduces the Firm’s regulatory and reputational risks,” Haynes said in the memo.

Point72 said last month that it plans to reward employees for demonstrating ethical behavior. Starting next year, some of the managers and analysts can earn an extra bonus of as much as 4 percent of compensation if they demonstrate adherence to the firm’s compliance policy and ethical standards, contributions to the community and repeated strong investment performance.

Prison Term

SAC changed its name to Point72 earlier this year. Jonathan Gasthalter, a spokesman for the Stamford, Connecticut-based firm at Sard Verbinnen & Co., declined to comment on the memo.

Eight former SAC money managers and analysts have pleaded guilty or been convicted of using confidential and material information to profit, and two have settled with federal regulators without admitting or denying wrongdoing.

Former SAC money manager Mathew Martoma, convicted in what prosecutors described as the biggest insider-trading case they have ever uncovered, was scheduled to report to prison yesterday in Miami.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.