November 05, 2013
Did Steve Cohen Get Away With It?
Posted by David Zaring

SAC Capital is paying a huge fine, but individuals aren't (yet) being charged for the insider trading committed by the firm.  How should we evaluate this?

On the one hand, it makes sense to target the company if you believe that it was essentially set up to trade on inside information on behalf of its clients.  The regrettable thing, maybe, is that the clients, who presumably flocked to the firm because they knew this, aren't taking haircuts out of the deal.  But Cohen, the owner, certainly is.  Here's James Stewart:

And given Mr. Cohen’s ownership of the firm, the $1.2 billion fine, as well as a previous $600 million settlement with the S.E.C., will come out of his pocket, rather than public shareholders’. With a fortune estimated at $9 billion, Mr. Cohen will still be a billionaire many times over, but the fine is nonetheless more than a dent in his personal fortune.

This aspect even mollified a critic like Professor Burton. “At least the target is the same as the alleged villain,” he said, referring to Mr. Cohen. “This is almost never the case when you sue and indict a public company.”

SAC Capital didn’t even pay lip service to the idea that it would unconditionally cooperate with the government’s investigation, let alone make a “timely and voluntary disclosure of wrongdoing,” which is another factor in the Justice Department’s guidelines that SAC flouted. “It’s extraordinary that they said publicly they would not cooperate,” Professor Friedman said. “They evidently thought they would get away with it with impunity.”

I don't get too hung up on this stuff - it is insider trading, after all, the constant obsession of the American prosecutor.  One doubts that the aggresive policing of it is really making the financial system much safer.  But there is something satisfying in sanctioning the vehicle designed to break that weird law hugely for, in fact, doing so.

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