Trimming the edges
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After a seven-year investigation, innumerable headlines, and comparisons to mythic aquatic beasts, the DOJ has handed down criminal fraud charges against one of the hedge fund industryâ€™s legendary firms, Steve Cohenâ€™s SAC Capital Advisors. The company, the Feds allege, fostered â€śinsider trading that was substantial, pervasive, and on a scale without known precedent.â€ť (The emails, as always, are the fun part. More on traders referencing â€śblack edgeâ€ť and info from â€śmy guyâ€ť at Company X here.)
This has all manner of dire consequences for SAC — prosecutors will reportedly seek to reclaim $10 billion in the forfeiture process, the WSJ says; SAC has already spent $615 million to settle civil insider trading charges brought by the SEC. Even before the indictment, banks were weighing pulling their business from SAC; the venerable Mooch, Charlie Gasparino tweeted, is withdrawing funds.
Cohen, for his part, could be banned from the securities industry for life, if not from the fallout from this suit, then from the civil charges the SEC filed last week against Cohen for failing to supervise his employees. The SECâ€™s charges, Felix wrote, suggested that Cohen didnâ€™t have any compunctions about employeesâ€™ trades that drew on illegal information. Cohen could also face a temporary ban: A law professor told the WSJ that Cohen could cut a deal with authorities, through which he agrees to step down for a period of five to 10 years.
Still, Breakingviewsâ€™ Reynolds Holding says that SAC employees are taking the bullet meant for Cohen through a protracted prosecution that â€śsmacks of vindictivenessâ€ť. The Economist writes that indicting SAC, and not Cohen himself, was simply Plan B for the Feds:
The Feds had all but promised a criminal case against Steve Cohen himself (pictured). But only SAC as a firm is targeted, not the man whose initials it borrowed for its name. The indictment thus reads like Hamlet without the prince. Not once is the name â€śCohenâ€ť spelled out, though the phrase â€śSAC ownerâ€ť, makes it 73 times.
To the FT and to the FTâ€™s John Gapper, this case is simply too big to settle: â€śThe fact that SAC will have to defend itself in court, and try to prove that its behaviour was legal, is how justice should work. It is also the appropriate lesson for Wall Street about the seriousness of insider trading,â€ť Gapper writes.
Despite the â€śblurryâ€ť line between legitimate and illegitimate information in trading, Matt Levine notes that the sheer amount of email evidence in the indictment could be the biggest problem for Cohen. That, or Cohenâ€™s apparent unwillingness to question the legality of any of the information he was receiving:
Â Assuming the best about your colleagueâ€™s motives is a perfectly sensible human behavior, the first or second or tenth time they email you about their inside information. Eventually, though, you might draw more negative conclusions. And eventually the DOJ did.
– Ryan McCarthy
On to todayâ€™s links: