Stevie Cohen’s criminal enterprise

November 5, 2013

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Steve Cohen’s SAC Capital Advisors has officially pled guilty to insider trading charges. SAC will pay $1.8 billion in a mixture of civil and criminal fines and forfeitures, and will stop accepting outside money from investors. The firm even revised its public statement at the last minute to express adequate contrition.

As Bloomberg notes, the SAC inquiry was just one part of an unprecedented multi-year government crackdown on insider trading: at least 87 people have been charged and 75 convicted since 2009. Six former SAC traders have already pled guilty to insider trading charges, with two more facing trial soon. Yet Cohen, aka the Fed’s White Whale or “the ultimate prize”, was not charged by the DOJ. “The legal conclusion,” the WSJ edit board writes, “seems to be that Mr. Cohen is a noncriminal running a criminal enterprise.”

For Matt Levine the plea agreement is both a “complete admission of guilt and still lets you believe whatever you want about the essential truth of what SAC was up to.” Its completely possible, Levine says, to read the plea agreement as evidence that Cohen was guilty of insider trading or that SAC is being punished for the work of a few rogue traders. Still, as DealBook notes, Cohen is still facing civil charges brought by the SEC, while the FBI is looking into SAC trades in shares of Gymboree, with the help of at least one cooperating witness.

John Cassidy writes that it’s unlikely prosecutors will bring racketeering charges against Cohen: “Far from being treated like a mobster, Cohen was hit solely in the pocketbook.” (The bulk of the fines will come out of Cohen’s net worth). Sheelah Kolhatkar says that Cohen will “continue to be a force in the market,” even after his fund converts to a family office. That, Reuters says, could mean Cohen may run a smaller, less regulated, and possibly more leveraged operation. For now at least, Morgan Stanley, Goldman Sachs, and JPMorgan will continue to do business with the firm.

The real legacy of the SAC case, James Stewart writes, is that it may serve as a “textbook example” of when to prosecute a corporation and may be a “harbinger of far more aggressive prosecution of corporate crime.” The size and “expressive value” of the settlement may also be a powerful statement to the hedge fund industry, he says. As one legal expert told Stewart: “You could argue that the audience for this is very sensitive to dollar signs” – Ryan McCarthy

On to today’s links:

New Normal
Net public investment is almost down to zero – Matthew O’Brien

Servicey
Why is diesel more expensive than gas in the US? – Business Insider

Alpha
The rich are terrible at asset allocation, or just really into conservative, liquid investments – Lawrence Delevingne

Financial Arcana
Shakespeare had an annuity: “Gold that’s put to use more gold begets” – Moshe Milevsky

Investigations
The former trader-turned-dog groomer who helped the Feds catch SAC and Rajaratnam – Bloomberg 

Forever Blowing Bubbles
Stock market rises, requisite hand-wringing ensues – WSJ 

Wonks
Wealth taxes aren’t enough – Kenneth Rogoff

Ugh
Don’t expect the CFTC to have the budget to do its job anytime soon – Pat Garofalo
Living on $8 an hour in NYC – PBS Newshour
Nearly a third of working Americans make less than $15,000. Half make less than $27,000 – Social Security Administration

Legalese
SAC’s plea deal comes with an escape hatch – Lynnley Browning

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