The Missing Cohen Criminal Charges on SAC Capital Insider Trading Indictment

The headlines blaze criminal charges for SAC Capital Advisors, a wayward hedge fund.  Yet if one reads the Southern district of New York indictment, it is fairly obvious the owner is getting off the hook.

The criminal charges are for insider trading from 1999 to 2010.  Seems SAC Capital and their subsidiaries hired managers and analysts based on their industry contacts and pushed to get the inside scoop on these various companies in order to profit from trades.

We have seen big headlines on various civil and criminal Wall Street evil doings previously and in the end, those not well connected might get some jail time, but for the most part, the fees will be slaps on the wrist in comparison to the profits made.  In the indictment itself, we already have a hint that penalties will be in the millions by the claim of damage done by SAC Capital's insider trading scheme.

The predictable and foreseeable result as charged herein was systematic insider trading by the SAC ENTITY DEFENDANTS resulting in hundreds of millions of dollars of illegal profits and avoided losses at the expense of members of the investing public.

Most of the indictment is for underlings, managers, traders, analysts who already plead guilty and this investigation has been ongoing for over six years.  Managers and research analysts were prized for who they knew getting the inside scoop on everything from drug trials and their confidential interim results to the latest innovations and business roadmaps inside tech companies.

The indictment is clearly against these limited partnerships and limited liability hedge funds.  The named defendants are:   S.A.C. CAPITAL ADVISORS, L.P., S.A.C. CAPITAL ADVISORS LLC, CR INTRINSIC INVESTORS, LLC, and SIGMA CAPITAL MANAGEMENT, LLC.

What is missing from all of this is the head honcho, the fund owner Steven A. Cohen is not charged.  How can this possibly be with proved systemic insider trading and a clear company hiring policy which was based on one's ability to get inside business intelligence?

Cohen has been charged civilly by the SEC.

The Securities and Exchange Commission today announced charges against hedge fund adviser Steven A. Cohen for failing to supervise two senior employees and prevent them from insider trading under his watch.

The SEC’s Division of Enforcement alleges that Cohen received highly suspicious information that should have caused any reasonable hedge fund manager to investigate the basis for trades made by two portfolio managers who reported to him – Mathew Martoma and Michael Steinberg. Cohen ignored the red flags and allowed Martoma and Steinberg to execute the trades. Instead of scrutinizing their conduct, Cohen praised Steinberg for his role in the suspicious trading and rewarded Martoma with a $9 million bonus for his work. Cohen’s hedge funds earned profits and avoided losses of more than $275 million as a result of the illegal trades.

“Hedge fund managers are responsible for exercising appropriate supervision over their employees to ensure that their firms comply with the securities laws,” said Andrew J. Ceresney, Co-Director of the SEC’s Division of Enforcement. “After learning about red flags indicating potential insider trading by his employees, Steven Cohen allegedly failed to follow up to prevent violations of the law. In addition to the more than $615 million his firm has already agreed to pay for the alleged insider trading, the Enforcement Division is seeking to bar Cohen from overseeing investor funds.

Yet, this is a joke considering how systemic insider trading was at a hedge fund owned by Cohen.  Very obviously it was company policy to obtain and use inside information for trades, so why isn't the head guy up for criminal prosecution?  The owner of course would set the hiring policy and clearly the activities of illegal insider trading would not be performed without his knowledge and approval.

According to Time, all should expect Cohen to also be indicted soon.

In other words, don’t be surprised if you see an indictment of Cohen in the coming weeks as well.

Yet how many times have we seen huge headline buzz on various Wall Street civil and criminal charges and in the end, the fines are pathetic and no one at the top ever faces consequences?

Over and over again we see a lack of criminal charges.  The Libor rate manipulation scandal settlements barely scratched the surface on the profits actually made by those manipulations.  Corzine may have gotten sued, but he clearly should be in jail for trading and losing customer funds.

Bloomberg claims the case against SAC Capital is unprecedented and hints there also might be charges against Cohen.  More likely is the demise of SAC Capital itself, yet that too will have no effect on Cohen.

SAC was a “veritable magnet for market cheaters,” Manhattan U.S. Attorney Preet Bharara said today at a press conference in lower Manhattan. While he declined to comment on the possibility of charges against Cohen, he said the investigation was “ongoing,” and that the government isn’t “restraining” SAC assets.

So strike yet another win corporate personhood and personal liability shields.  Generally speaking it seems business entities and the laws which surround them are all about giving carte blache to executives and only the underlyings will actually pay for crimes committed under the holy corporate name.  They don't call Delaware a tax haven and the judgment proof state for nothing.  Wrap yourself inside an American business entity, except for sole proprietorship poor smucks, and one can get away with almost anything.

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Comments

Wall Street defense attorneys = past federal prosecutors

Hey, why ruin the revolving door? Go to a private law firm, become an AUSA after a few years, then go back to defending the same firms you were supposedly "investigating" and "prosecuting" as a fed. Maybe become a federal judge or partner in firm. Who knows, become head of the SEC or DOJ or something else. But whatever you do, don't, don't, DON'T seek real prosecutions and pretend to be a badass because there's no money in that. And you'll piss off future Wall Street companies and firms and big corporate attorneys you work with and have to report to in Manhattan, DC, etc.

Just compare the local DA's offices (or county prosecutor's offices, depending on state) and what they prosecute and the sentences they get after trial or on pleas vs. feds. And the feds have easy, easy laws they can get 30 years on every single count. Basically feds steal easily provable cases the locals wrapped up but the Feds want PR and press conference time with gullible reporters. Feds won't seek a fraction of that because it pisses of their future employers aka big $.

Plenty of people getting hard sentences in state prisons for violent and non-violent crimes. Now compare what the feds seek in the fed system. And that's with all the resources available to the feds (e.g., every alphabet agency, massive budgets, etc., etc.). Corruption says what? Madoff is kickin' it in a camp after people repeatedly warned every fed what he was up to. Insider trading? Corruption? Politicians on the take? And in other news, the sky is blue.

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