Hedge fund billionaire Steven A. Cohen in sworn testimony earlier this year called the rules on insider trading very vague and said sometimes it's a judgment call as to whether a tidbit about a public company is inside information.

The founder of SAC Capital Advisors LLC, one of the hedge fund industry's best-known firms, offered up his views on insider trading during two days of deposition testimony in February and April this year as part of a long-running civil lawsuit filed by Canadian insurer Fairfax Financial.

It's rare for Cohen to speak publicly and even rarer for him to share his views on something as controversial as insider trading. Cohen's insights are revealing not just because of his status as an industry titan, but because his $14 billion firm continues to draw attention in an ongoing investigation by U.S. authorities into insider trading.

In the deposition, an extended excerpt of which was obtained by Reuters, the 55-year-old trader says he often leans on his fund's lawyer to determine whether something constitutes inside information and admits to being not well-versed in SAC Capital's own internal compliance manual.

The answer is when you're trading securities, it's a judgment call, said Cohen, during the deposition that spans more than 600 pages. Whatever the compliance manual says, it probably doesn't take into account every - every potential situation.

The deposition was taken in connection with a lawsuit filed in 2006 by Fairfax, alleging SAC Capital, Kynikos and other traders took part in a so-called short conspiracy.

The lawsuit alleges the hedge funds bet against Fairfax shares and then spread negative stories about the company in hopes of driving down the stock price. Recently, SAC Capital won a motion to be dismissed from the insurer's lawsuit but Fairfax's claims of improper trading against other hedge funds and traders continues.

Reuters petitioned the court to obtain the transcript. SAC Capital and its lawyers had sought to keep the excerpts of Cohen's deposition sealed, arguing that the contents were trade secrets and information that would be useful to competitors.

A Cohen spokesman was not immediately available for comment.

In the deposition, Cohen acknowledges that in the aftermath of Galleon Group founder Raj Rajaratnam's arrest on insider trading charges in October 2009, his public relations firm suggested he begin reaching out to some reporters to burnish his image and dispel rumors of improper trading.

In particular, Cohen talked about a December 2009 story in The New York Times on SAC Capital and a subsequent June 2010 profile of Cohen and his wife Alexandra in Vanity Fair.

There are rumors and what we wanted to do was dispel any notion of that, he said.

When asked by a Fairfax lawyer what rumors he was referring to, Cohen responded: The rumors you just stated, that people weren't sure how we conducted our business.

In the questioning, Cohen comes off as controlled and well-prepared to engage in a sometimes testy back-and-forth with Fairfax's lawyer, Michael Bowe, over the dividing line between what constitutes permissible and improper trading.

Cohen says the rules on what constitutes inside information are very vague and sometimes it can depend on whether the information will move a stock, hurt another trader or can be obtained through another source.

For instance, Cohen said if he got a tip that an analyst is going to downgrade a stock and his fund opts to buy the stock that is proper because I'm on the other side of the trade.

Cohen said what is material in analyzing whether or not it is inside information often depends on the circumstances.

You know, I mean, I can argue that someone else could think that a - being short in front of a sell recommendation is a non-event because it's not going to move the stock, and somebody else would think, you know, that's trading on material nonpublic information regardless if it moves the stock or not, said Cohen. These are judgment calls.

The release of a redacted version of Cohen's deposition came about after Reuters went to court to seek access to it and other documents produced in the lawsuit filed by Fairfax in a New Jersey state court.

A copy of Cohen's full deposition was subpoenaed last year by the Securities and Exchange Commission, which was conducting its own investigation into Fairfax's allegation.

Last week Reuters reported that the SEC closed its investigation in the Fairfax case with regards to SAC Capital and James Chanos' Kynikos Associates. (http://link.reuters.com/xus55s)

(Reported by Matthew Goldstein; editing by Claudia Parsons and Martin Howell)

Raj Rajaratnam Insider trading