Multibillionaire Hedgie Thumbs His Nose at the Feds

A couple of weeks ago, Steven A. Cohen, the multibillionaire founder of hedge fund SAC Capital, agreed to settle insider-trading charges with the Justice Department and the Securities and Exchange Commission for what the feds predictably called a “record” $616 million.

Steven A. Cohen. Photo by Jenny Boyle for Jennifer Davis Photography (PRNewsFoto/Peppe Communications)

Steven A. Cohen. Photo by Jenny Boyle for Jennifer Davis Photography (PRNewsFoto/Peppe Communications)

And—need I even say it?– SAC will neither admit nor deny the allegations, a singularly empty declaration that has driven critics, and even a judge or two, crazy.

“At least nine current or former SAC employees have been tied to insider trading while at the firm,” The New York Times reported.

In an investigative piece, The Wall Street Journal reported, “Between 2002 and 2011, dozens of well-timed SAC trades that didn’t show up in its quarterly filings were flagged as suspicious by securities regulators…” Those included many of the trades involved in this settlement.

Cohen is one of the most successful and secretive hedge fund bosses, and SAC’s signature style has been rapid-fire trades in and out of huge positions. An information “edge” has been critical to its profitability.

 

That’s why rumors about insider trading have swirled around the firm—and Cohen himself–for years. Now the fund has confirmed them by making this deal, formal admission or not.

The judge has delayed approving the settlement. He should consider throwing it out altogether. Why? How about lack of contrition, for one?

Within days of the deal, Cohen purchased from casino mogul and fellow billionaire art collector Steve Wynn a 1932 Picasso painting called “Le Rêve” (“The Dream”).  The price was a whopping $155 million, $16 million more than Cohen had agreed to pay before Wynn, in a burst of exuberance, put his elbow through the canvas. (I’m not making this up.) The painting is now patched up, so no hard feelings.

“Le Rêve” by Pablo Picasso (1932), which Cohen bought for $155 million after settling insider-trading charges. Source: WikiMedia Commons.

“Le Rêve” by Pablo Picasso (1932), which Cohen bought for $155 million after settling insider-trading charges. Source: WikiMedia Commons.

Then Cohen paid $60 million for an oceanfront mansion in the Hamptons to complement a nearby one he already owns.

Has Cohen no shame whatsoever? Apparently not, because with these moves he’s thumbing his nose at the U.S. government and the rest of us.

John Cassidy in The New Yorker was outraged:

The settlement was arguably the trade of his life. For 6.5 per cent of his fortune—the equivalent of four Picasso paintings—he has gone a long way toward removing a threat that could have destroyed his firm and possibly seen him facing charges.

Cassidy laid the blame squarely on the Feds:

But the government, for whatever reason, persists in allowing Wall Street firms to resolve big cases without admitting the obvious: the reason they are paying large fines is that they did something wrong.

It’s a farce, and it’s not getting any funnier. The SAC settlement marks the first time, to my knowledge, that the SEC has accorded such deference to a hedge fund, and it also raises the question of whether the Justice Department is now ducking bringing criminal charges against Cohen himself.

Actually, there’s no question at all–Attorney General Eric Holder himself let the cat out of the bag in Congressional hearings a few weeks ago when he flatly declared:

…If you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy…

He was talking about why the big Wall Street banks have gone scot-free, but now it’s evident that his department and the SEC have extended that rule to “systemically important”  multibillion-dollar hedge funds as well.

No wonder Cohen is laughing all the way to the Hamptons. He knows full well that in the America of  2013 he, and others of his ilk, really are above the law.

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