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November 20, 2006

VIA FEDERAL EXPRESS Peter Nussbaum, Esq. General Counsel

SAC Capital Management LLC 72 Cummings Point Road Stamford, CT 06902

Re: Andrew Z. tong v, SAC Capital Management, LLC; SAC Capital Advisors, LLC; and Ping Jiang,

Dear Mr. Nussbaum:

As you are aware, we have been retained by Andrew Z. Tong to investigate certain issues related to his employment with, and termination by, SAC Capital Management, LLC and SAC Capital Advisors, LLC (collectively referred to herein as "SAC"), as well as the brutal treatment he received from Ping Jiang during the course of his employment. Simply put, having examined Mr. Tong's tenure with SAC and, in particular, the unlawful treatment he has been subjected to by Mr. Jiang, as well as the utter lack of investigation that ensued by SAC, we have concluded that both SAC and Mr. Jiang have violated various state and local anti-discrimination and anti-retaliation statutes. Accordingly, Mr. Tong has authorized us to prepare and file a Summons with Notice against SAC. and Mr. Jiang with the Supreme Court of the State of New York in the County of New York, a copy of which you have already received.' Nevertheless, we believe that it is prudent to explore further the possibility of a negotiated private settlement between the parties before proceeding with public litigation.

1 Please note that while, at this juncture, having yet to conduct discovery or conclude our investigation, we have chosen not to name Steven Cohen, Margaret Belden, or Elizabeth Go individually as defendants in the Summons with ~otice, we reserve the right to do so in the future given their respective ownership interests and decision-making involvement. See generally Tomka v. Seiler, 66 F.3d 1295, 1317 (2d Gr. 1995); Stallings v. U.s. Electric, Inc., 707 N'y'S.2d 9, 10 (lSI Dep't 2000); Murphy v. ERA United Realty, 674 N'y'S.2d 415, 417 (2nd Dep't 1998); see also Smith v. AVSC Inn, Inc., 148 F. Supp.2d 302, 309 (2d Gr. 2001); Walters v. BronxLebanon Hospital Center, 2004 WL 770962, at *12 (S.D.N.Y. 2004); Jong-Fwu v. Overseas Shipholding Group, Inc., 2002 WL 1929490, at *7 (S.D.N.Y. 2002).

Employment Law and Litigation

Towards that end, what follows is an analysis ofMr. Tong's claims. As you may know, Mr. Tong was employed by the SAC as an Analyst/Trader in Mr. Jiang's macro proprietary trading department from in or about September 1, 2005, until the time of his termination, which became effective on April 10,2006.2 During these approximately eight months, Mr. Tong distinguished himself as a star performer among his peers, consistently earning the praise of his coworkers, including Mr. Jiang who was his direct supervisor.

Nevertheless, there is clear and incontrovertible evidence that during this period of time Mr. Tong was sexually assaulted, victimized by quid pro quo harassment, and subjected to a pervasively hostile work environment by Mr. Jiang before ultimately being terminated for refusing Mr. Jiang's increasingly violent sexual advances under the guise of a "training program" for SAC analysts and traders. Moreover, when SAC senior management became aware of this situation, instead of moving swiftly to protect Mr. Tong, it showed him the door as soon as he complained about Mr. Jiang's unlawful treatment.

Factual Background

During all times relevant herein, Mr. Tong reported directly to Mr. Jiang, a Senior Portfolio Manager ("SPM"), who, in tum, reported directly to Brian Cohen, the Preside'nt of SAC.) From what we have learned, it is evident that Mr. Jiang is a severely disturbed individual whose aberrant behavior was condoned by SAC simply because he is a highly profitable SPM. Indeed, we have reason to believe that Mr. Jiang has engaged in such inappropriate conduct with other subordinates at SAC.

Mr. Jiang began to personally recruit Mr. Tong to join SAC in or about February 2005. In or about July 2005, Mr. Jiang told Mr. Tong that he could expect to earn approximately $1 million dollars within his first.two years at SAC. Mr. Jiang made it clear, however, that he would not extend a "final written offer of employment" to Mr. Tong until Mr. Tong had resigned his current position with Stark Investments, Inc.

Even before Mr. Tong officially began to work at SAC, Mr. Jiang informed him that Mr. Tong would have to undergo a rigorous "training program" practiced by Mr. Jiang, which was aimed at deconstructing and feminizing Mr. Tong so as to make him more suitable for Mr. Jiang's purposes. In Mr. Jiang's words, he wished to buildthe ideal Analyst/Trader by combining "the skills of a rran" with "certain traits of a woman". Thus, Mr. Jiang demanded unequivocal adherence from Mr. Tong to his "training

2 Mr. Tong's relationship with SAC was governed, inter alia, by an employment contract which guarantees his base annual compensation at a rate of $125,000 per annum as well as a minimum annual bonus of $125,000 through the end of 2006, unless previously he was terminated for cause by SAC or voluntarily resigned his employment with SAC Mr. Tong was not terminated for cause nor did he voluntarily resign.

3 Brian Cohen reported directly to Steven Cohen (no relation), the founder and Chief Executive Officer of SAC.


program" as a condition of continued employment. Specifically, Mr. Jiang planned to "shape" Mr. Tong's "personality" by making him more "passive, humble, hard-working, subservient, and detail-oriented" (which, according to Mr. Jiang, were female personality characteristics) and less "aggressive and impulsive" (which, according to Mr. Jiang, were male personality characteristics). Knowing that Mr. Jiang was a powerful SPM who was held in the highest regard by SAC's senior management, including Messrs. Cohen and Cohen, and already having resigned his prior employment at Mr. Jiang's insistence, Mr. Tong reluctantly complied with each of Mr. Jiang's increasingly abusive and perverse demands under the guise of his so-called "training program".

Accordingly, as a condition ofMr. Tong's continued employment with SAC, Mr.

Jiang required him to wear subtly feminine attire in the workplace during business hours (including blouses, slacks, shorts and open-toed sandals). After-hours, Mr. Jiang demanded that Mr. Tong wear more obviously feminine attire in the workplace (consisting of bras and panties, blouses, skirts, dresses and high-heeled sandals). On more than one occasion, Mr. Jiang summoned Mr. Tong into an empty conference room after business hours and forced him to disrobe and model various feminine outfits as well as put on make-up. During these humiliation sessions, Mr. Jiang would make comments to Mr. Tong such as, "don't worry you'll get prettier with make-up"; "you look cute in that"; and "that looks sexy on you." This forced feminine dressing occurred throughout the course of Mr. Tong's employment at SAC; moreover, during this entire period of time, Mr. Jiang also insisted that Mr. Tong grow and maintain his hair long and wear make-up such as lipstick and nail polish. Not surprisingly, several of Mr. Tong's coworkers commented on his effeminate appearance, which further exacerbated the hostile work environment he was experiencing. Moreover, during the course of their preliminary discussions in the summer of2005, Mr. Jiang conveyed to Mr. Tong that Mr. B. Cohen was aware ofMr. Jiang's plan to subject Mr. Tong to his intensive "training program". Thereafter, Dr. Ari Kiev, a workplace behavioral psychologist retained by Mr. S. Cohen to enhance the performance oftrader/analysts at SAC, observed Mr. Tong wearing feminine attire in the workplace during business hours but did not say anything to him or to Mr. Jiang (as far as Mr. Tong is aware).

Through the fall of2005, Mr. Tong tried to resist further forced "feminization" at the hands ofMr. Jiang. However, Mr. Jiang rebuffed Mr. Tong's attempts to challenge his authority and reminded Mr. Tong of his agreement to adhere to Mr. Jiang's training program. In this context, Mr. Jiang reiterated his promise that Mr. Tong would soon make millions of dollars if (and only if) he followed Mr. Jiang's directions unconditionally. According to Mr. Jiang, through this complete surrender, Mr. Tong would demonstrate his "commitment" and earn Mr. Jiang's "trust". Intimidated by Mr. Jiang's authority and backing by senior management, as well as lured by Mr. Jiang's promises of making millions of dollars, Mr. Tong again submitted to his superior's demands.

Yet, as time passed, Mr. Jiang wanted still more form Mr. Tong. Thus, in or about the beginning of October 2005, Mr. Jiang delivered an ultimatum to Mr. Tong: the "training program" was not producing results as quickly as Mr. Jiang had hoped, so they


would have to expedite the process if Mr. Tong wished to remain with, and succeed at, SAC. Specifically, Mr. Jiang instructed Mr. Tong immediately to commence taking "female hormones" to accelerate the "feminization process". To threaten Mr. Tong into submission, Mr. Jiang told Mr. Tong that (a) he would fire him ifMr. Tong failed to obey his orders to use female hormones and (b) Mr. Tong would not be allowed to undertake his own trades or create any profits until he made significant progress in Mr. Jiang's brutal and perverse "training program". Faced with this Hobson's choice, Mr. Tong, albeit reluctantly, capitulated and began to take over-the-counter herbal supplements that artificially boosted his estrogen level, as well as female birth control pills that his wife had brought back from China in bulk."

Nevertheless, from in or about the fall of2005 to the time of his termination, Mr.

Tong continued to be subjected to an increasingly hostile work environment by Mr. Jiang, who, openly in front of co-workers, would refer to Mr. Tong as "miss"; "whore"; "piece of shit"; and "stupid girl". During this same period of time, over Mr. Tong's objection, Mr. Jiang would pinch Mr. Tong's buttocks in front of co-workers so as to humiliate him. 5 Additionally, in or about September or October 2005, Mr. Tong's effeminate dress became known throughout the firm when a picture of him in feminine attire and make-up was published as his employee photo on SAC's intranet and then abruptly withdrawn and replaced with a stranger's likeness appearing over his name.

As part of his "training program, Mr. Jiang set about to systematically bully and control Mr. Tong through obscene sexual ultimatums and physical brutality. By way of example, the following tortious and criminal acts were perpetrated by Mr. Jiang against Mr. Tong at SAC's very own offices: (a) in or about the beginning of February 2006, Mr. Jiang forced Mr. Tong to perform oral sodomy; (b) in or about the beginning of March 2006, Mr. Jiang committed assault and battery, as well as false imprisonment.jupon Mr. Tong by restraining him with ropes and forcibly introducing certain foreign objects into Mr. Tong's rectum; and (c) in or about mid-March 2006, Mr. Jiang again restrained Mr. Tong with ropes and forcibly urinated into his mouth.

Up through the end of March 2006, :1. Jiang insisted that Mr. Tong continue taking female hormones so as to "shape" his .'personality" into a "combination of male and female traits" including being "dedicated, hard-working, subservient, and detailoriented." Moreover during this period of time, Mr. Jiang continued to pressure Mr. Tong to perform oral sex on him as a condition of Mr. Jiang authorizing Mr. Tong's trades. In this regard, Mr. Jiang remarked to Mr. Tong: "you'll have to give me a blowjob if'you want to make that trade."


4 Mr. Tong took the birth control pills from his wife without her knowledge or consent.

S Throughout his employment with SAC, Mr. Tong witnessed Mr. Jiang make several other discriminatory or bigoted comments, such as: "jews are good to each other": "be careful with blacks and jews in the workplace because they are troublemakers and will sue you"; "never hire women, while they learn well they are not dedicated and take off too much time when they get pregnant". Indeed, once Mr. Tong was once assigned the task of finding candidates for a junior analyst/trader opening within Mr. Jiang's group and when he proffered the resume of a female candidate, Mr. Jiang responded: "why would we even consider a woman?"


Then, in or about the end of March 2006, Mr. Tong informed Mr. Jiang that he (a)

had ceasedraking female hormones because he was concerned about the lasting effects

on his body as well as the adverse impact it appeared to be having on his efforts to conceive a child with his wife; (b) would no longer engage in sexual conduct with Mr. Jiang; and (c) believed that he had been subjected to discriminatory harassment. Mr. Jiang angrily responded by threatening to terminate Mr. Tong for insubordination - i.e., Mr. Jiang stated: "if you don't follow my orders I will fire you." Mr. Jiang also ordered Mr. Tong not to tell anyone at SAC about his "training program" because "no one would believe you anyway" and- "you would never humiliate yourself by admitting that I used you as my whore and my toilet".

Shortly thereafter, Mr. Jiang falsely accused Mr. Tong of engaging in unauthorized trading of a stock withitne hckertape syriibot'Of"CYD" on behalf of SAC. To the contrary, however, Mr. Jiang had previously authorized Mr. Tong to start shorting the CYD stock on behalf of SAC in early February 2006, crediting Mr. Tong's anticipation, of a weak earnings report by CYD, and then increase the CYD short position to $20 million dollars after CYD, in fact, reported weak earnings at the end of February 2006.6 Indeed, Mr. Jiang explained to Mr. Tong that amplifying an anticipated (and then realized) trend in a stock through any means available in the market was central to his trading philosophy. Mr. Jiang also gave Mr. Tong permission to engage in active "day trading" ofthe CYD stock in order to build up thousands of "short option" positions to increase the "daily carry" of the portfolio. This "option selling" strategy was another integral part ofMr. Jiang's trading philosophy.

Then at the end of March 2006, once Mr. Tong had put a stop to Mr. Jiang's

abusive conduct, Mr. Jiang ordered him to immediately unwind the CYD short pOSitiO) ~ what turned out to be a substantial loss for SAC. Specifically, Mr. Jiang enmeshed Mr.

/ Tong in an elaborate scheme, which involved mani2.ll@!ion_oLthe.CYD-stock-and __

lmanufacturing false !l.y'g;!.tiY~_~Jl~lyt!~~!'!'~P'Qrts.J3.Q.OJILCYD in -Qr9.~lp_ fa~i!itate this _

.!!~a~~ All. of the other members ~fMr .. Jiang's ?Toup were aware o.f, and two of them partIcIpated In, the CYD stock manipulation. Dunng the course of this scheme, Mr.

Jiang ordered Mr. Tong to (a) execute manipulative loss-creating trades that resulted in approximately $3 million dollars in short-term losses for SAC (as well additional losses 9f-future profits that likely would have been in the millions of dollars) and (b) generat~-

I and disseminate false negative analytical reports about the CYD stock being traded by

( SAC in order to benefit SAC's trading position. Mr. Tong could not stop the ~JP-ulative trading, with which other members of the group also disagreed, but he did refuse to participate in the false reporting scheme. Mr. Jiang also convinced Mr. Tong to accept responsibility (falsely) for decisions and actions that he had been directed to take by Mr. Jiang, claiming that SAC would lose confidence in Mr. Jiang's entire group if it knew the truth and that as long as Mr. Tong did what Mr. Jiang demanded, Mr. Tong would soon be trading independently and making millions of dollars. Mr. Jiang subsequently blamed the $3 million dollar loss OJl Mr. Tong and used it as one of the

6 Mr. Tong confirmed this strategy in writing with Messrs. Cohen and Cohen.


stated reasons for Mr. Tong's termination. In retrospect, much of what Mr. Jiang asked Mr. Tong to do during his final weeks at SAC appears to have been nothing more than a thinly-veiled effort to "set up" Mr. Tong for termination after Mr. Tong had finally summoned up the courage to demand an end to Mr. Jiang's brutal "training program" of forced feminization and sexual torture.

On April 10,2006, Mr. Tong was suthmoned to a meeting by Elisabeth Go, inhouse counsel for SAC (and a close friend ofMr. Jiang's) and presented with a proposed separation agreement that required him to execute a general release in return for two weeks severance pay. Also present at this meeting was Margaret Belden, SAC's Human Resources Manager. Mr. Tong categorically refused to resign or release his claims and asked both Ms. Belden and Ms. Go to investigate the sexual harassment and other unlawful conduct he had suffered at the hands ofMr. Jiang. The response from SAC, through both Ms. Go and Ms. Belden was as shocking as it was brief: "we know. all about your accusations against Mr. Jiang ... we don't want to hear anymore details from you ... it's. too late .. , talk to your lawyer."

Legal Analysis

Based on our preliminary investigation of the circumstances.ofhis employment and termination, we firmly believe that burden-shifting analysis applicable to Mr. Tong's discrimination, harassment, and retaliation claims will firmly establish liability against both SAC and Mr. Jiang. See McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S. Ct. 1817, 36 L. Ed. 2d 668 (1973); Texas Dep't of Community Affairs v. Burdine, 450 U.S. 248, 253-57,101 S. Ct. 1089,67 L. Ed. 2d 207 (1981), as clarified in St. Mary's Honor Center v. Hicks, 509 U.S. 502, 505-51~, 113 S. Ct. 2742,125 L. Ed. 2d 407 (1993); Reeves v. Sanderson Plumbing Products, Inc., 120 S. Ct. 2097, 2109 (2000).

In order to make out a prima facie case of discriminatory discharge in violation of Title VII, a plaintiff must show "(1) membership in a protected class, (2) satisfactory performance of job duties, (3) discharge from the job, and (4) discharge occurring in circumstances giving rise to an inference of discrimination". McLee v. Chrysler Corp., 109 F.3d 130, 134 (2d Cir. 1997); accord Howley v. Town of Stratford, 217 F.3d 141, 150 (2d Cir. 2000). "If the plaintiff meets that burden, and the employer then comes forward with admissible evidence of a legitimate nondiscriminatory reason for its adverse employment decision, the plaintiff is given an opportunity to adduce admissible evidence that would be sufficient to permit a rational finder of fact to infer that the employer's proffered reason is pretext for an impermissible motivation." Howley, 217 F.3d at 150. "After the Defendant produces evidence of such a reason, however, summary judgment is not appropriate if plaintiff, in addition to establishing his prima facie case, has produced 'sufficient evidence to reject the employer's explanation'" because, under Reeves, the "prima facie case and sufficient evidence of pretext may permit trier[ s] of fact to find unlawful discrimination without additional, independent evidence of discrimination." Hollein v. Citibank, N.A., No. 97 Civ. 3982 (LMM), 2000 WL 1557936 (S.D.N.Y. October 19,2000) (quoting Reeves v. Sanderson Plumbing Products, Inc., 120 S.Ct.

2097,2109 (2000». ~


retaliation, should anyone at SAC ever decide to undertake such a venture. Perhaps such an investigation could answer the preliminary question that will ultimately be posed to a jury should this case not be resolved: How i~ it that Mr. Tong, a dedicated and conscientious employee who repeatedly suffered degradation, harassment and outright physical abuse by Mr. Jiang -- and who had the courage ultimately to stand up to his harasser and complain about it -- finds himself unemployed while his harasser continues in his vaunted capacity as an SPM at SAC, earning upwards of $10 million dollars per annum?

From our perspective, it is clear that SAC and Mr. Jiang have engaged in a pattern or practice of unlawful discrimination and retaliation against Mr. Tong. Thus, unless a mutually acceptable resolution of this matter can be reached in a private settlement, Mr. Tong is committed to vindicating his rights through a public adjudication of his claims at trial. Should either SAC or Mr. Jiang be interested in pursuing this opportunity for a negotiated settlement, please feel free to contact me directly, or through your legal representative, by no later than the close of business on December 1, 2006.

In any event, please be advised that in the future any communication with Mr.

Tong regarding his legal claims must occur through our office only and that, given the likelihood of impending litigation, as stated in our prior letter, SAC and Mr. Jiang must undertake reasonable efforts to preserve from spoliation all documents or other records relating to Mr. Tong's employment and their unlawful conduct. Finally, we trust that our formal statement ofMr. Tong's claims in thi~ letter will not cause SAC or Mr. Jiang to retaliate further against Mr. Tong by disparaging him to any third party.

I look forward to your prompt and substantive response.

Very truly yours,


v(~is G.


- ,

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the only way that you will do very well in my group."

25. Still not completely convinced, I asked Defendant Jiang: "Have you tried this type of

training program before?" Defendant Jiang answered: "Similar methods, yes, but I ..

. cannot tell you more details, because one's personality weaknesses and training are top


secrets. Trading is war, if you know someone's personality weakness or trading style, you

can destroy him in the market."

26. Defendant Jiang went on to explain his most significant trading positions to me,

particularly his short positions, and made me promise that I would not tell anyone.

Defendant Jiang said: "There are strict confidential rules. One's training program,

salary, payout contract, and trading methods and positions are strictly confidential. You

must not discuss such things with anyone, including the other members of the group

including Steven Cohen or anyone else at SAC. Steven Cohen only wants us to make

money, he doesn't care or want to know our secrets to make money -- SAC doesn't need

to know and doesn't want to know. While you can tell people about our long-term views


of the market - e.g., bullish EMG, short USD -- you must not disclose our group's actual )

positions, trading methods, or internal operations to anyone outside of the group

including your wife. We have many secrets to keep, many rules to follow. If you violat/' my confidences, you will be fired." /


I said "SAC seems different from the hedge funds I've worked for or heard about."

Defendant Jiang responded: "Yes, SAC is very unique. Here every group, like mine, is

very autonomous - each group is almost a separate business at SAC. As long as I don't


breach my drawdown limit, even my capital is flexible and I can increase leverage. I have

so much freedom here; it is just like my own fund."

28. After spending approximately two hours talking in Central Park, Defendant Jiang and I

went back to his office and Defendant Jiang asked Bruce Pan to further explain the CAD

trading strategy to me, as well as print out the relevant spreadsheets, so that I could take

the information back home and start working on how to improve the CAD currency

trading book. At this point, although I had some concern about the training program

Defendant Jiang had in store for me, I was excited about being accepted into his macro

trading group.

29, I left the SAC Defendants' offices and went home and told my wife that Defendant Jiang

was going to take me into his very rigorous training program, that the training would be

very strict, and that we needed to rent an apartment no more than five minutes from the

SAC Defendants offices, I did not tell her that Defendant Jiang had asked me to wear

women '8 clothing as Defendant Jiang had told me that hIS traming program was

confidential. My wife was not too happy because she said an apartment close to the SAC

Defendants' offices would likely be noisy, dirty, small, very expensive, and far from our


30. In or about the end of July of2005, Defendant Jiang, Bruce Pan, and I exchanged many

telephone calls and emails, discussing the job offer and my reference checks. During the

course of these discussions, Defendant Jiang stated: "I discussed your personality

weaknesses with Brian Cohen and he also found out from certain reference checks that


you had refused to cut losses by backing out of positions. Thus, the $1 million job offer

seems impossible now, but working for me I am confident you will make $1 to $2 million