Opinion

Bethany McLean

Is Steve Cohen the real target in this trial?

Bethany McLean
Feb 5, 2014 22:11 UTC

The fate of Mathew Martoma, the former SAC Capital portfolio manager charged with the biggest insider trade in history — more than $275 million in profits and avoided losses, says the government — is now in the hands of a 12-person jury, which began deliberations in a Manhattan courthouse Tuesday afternoon.

But whatever the verdict for Martoma, the trial has been bad news for someone else: Martoma’s former boss, SAC head Steve Cohen. Given the slow, but relentless, nature of the government’s actions against Cohen, it might be worth remembering the old adage: It ain’t over til it’s over.

Cohen has, to date, famously avoided any criminal charges personally — despite a string of other government actions against both him and his firm. Last March, SAC agreed to pay more than $600 million to settle civil insider trading charges, brought by the Securities and Exchange Commission, involving Martoma’s trade. Then, on July 19, the SEC charged Cohen with failing to supervise his employees, alleging that he “received highly suspicious information that should have caused any reasonable hedge fund manager to investigate the basis for trades” made by Martoma and another manager.

SAC quickly fired back. A 43-page internal white paper rebutting the SEC’s charges was leaked to the press. In it, SAC claimed that its compliance efforts were so fantastic that the SEC was just wrong, wrong, wrong in accusing Cohen of failing to supervise his employees.

Among other things, the firm’s lawyers wrote, “SAC’s compliance team, with Cohen’s full support, deploys some of the most aggressive communications and trading surveillance in the hedge fund industry.” That included a “review of trading made around market moving events and corporate access events” along with “regular reviews of the firm’s most-profitable trades.” SAC lawyers also asserted, “Cohen has frequently forwarded to compliance staff communications he receives that caused him concern.”

The folly of trying to level the investment playing field

Bethany McLean
Jul 25, 2013 17:16 UTC

The government is cracking down on insider trading; isn’t that great news for you? Last Friday, the Securities and Exchange Commission charged hedge fund mogul Steve Cohen with failing to supervise two employees who themselves face insider trading charges; on Thursday morning the Justice Department filed criminal charges against his firm, SAC Capital. Earlier this summer, the news broke that New York’s attorney general, Eric Schneiderman, was investigating the early release (by Thomson Reuters, which publishes this column) of the University of Michigan’s widely-watched index on consumer sentiment to a group of investors. Faced with a court order, Thomson Reuters agreed to suspend the practice, while asserting that “news and information companies can legally distribute non-governmental data and exclusive news through services provided to fee-paying subscribers.”

In a statement, Schneiderman said that “the securities markets should be a level playing field for all investors.” Preet Bharara, who is the U.S. Attorney for the Southern District of New York, has also invoked the notion of fairness. He told CNBC’s Jim Cramer, “I think people need to believe that the markets are fair, and that the same rules apply to everyone…I don’t want to buy a stock because I have a feeling that someone knows more than I do.”

Let’s give both Schneiderman and Bharara credit for good intentions. What could be more desirable than a level playing field in the all-important game called our financial security? But the playing field isn’t level, it never has been, and I’m not sure it can ever be. If history is any evidence, attempts to level it have only tilted it all the more. So, maybe the real problem is the pretense of fairness.

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