December 06, 2012
Steven Cohen Is Relying 100% On The Criminal Intent Requirement As His Defense, Right?
Posted by David Zaring

One can go back and forth on the merits of the SEC's obsession with insider trading, but the Martoma SAC Capital case looks pretty damning.  You don't want to prejudge.  But it looks like:

a) an SAC analyst obtained inside information from a tipper breaching his fiduciary duty to his employer (who had hired him to do a study on a new drug)

b) the analyst must have known that the tipper was breaching his fiduciary duty (though he denies that he has done anything wrong).

c) the analyst, on the basis of the information, told Cohen to trade the stock.

d) Cohen did so.

That sounds like a slum dunk case that SAC Capital committed insider trading, if only a corporation (or partnership or whatever) could do so.  The only question is whether Cohen himself (as opposed to his hedge fund) knew that the advice he was getting was based on inside information, right?  The idea would be that he didn't ask his analyst what the basis was for his recommendation that he dump a centimillion dollar stake in a stock?  Culpable intent is an O'Hagan requirement, as I (and Brian Carr) understand it.  I like to defer to others when it comes to 10b-5, so if you have any advice in the comments, I'd be happy to hear it.

Below is the Times's nifty graphic on the other issues faced by SAC, if you haven't seen it.

Sac times


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