Feds Crack Down on Insider Trading – Sort Of + Video

By - October 28, 2013
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steve-cohenSteve Cohen is one of the biggest Wall Street villains, with a bald head and beady eyes…to some he resembles Lex Luthor. This year, the SEC took $615 million from Cohen’s mutual fund in two separate regulatory settlements involving charges of insider trading. After those settlements, he showed how sorry he was by buying a new $60 million beach house in the Hamptons and a $155 million Picasso painting.

This basically was giving the finger to the US government, and it was flipped by the man who must be thinking that he got away with a wrist slap, just like many other Wall Street criminals have gotten away with it in the last 10 years.

However, Steve Cohen got a surprise this summer, when he has hit with an SEC civil charge and criminal charges against his company – SAC Capital Advisors. The SEC charged that he is guilty of failure to supervise, which does not sound like anything that bad. But it would permanently ban him from working in the securities business, a devastating blog to him. This appears to be a very smart and aggressive prosecution by the US government. SEC has filed the case via administrative proceeding and not in a civil court. So, Cohen will have limited ability to seek discovery. This would have really helped him to properly prepare his defense.

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A few days after this, the FBI and the DOJ dropped the criminal fraud charges against his company. But charges against Cohen himself may still be in the works. It seems that the government is trying to hit Cohen with everything they can. But does putting one hedge fund criminal behind bars make up for the lack of action against many other big Wall Street barons?

SAC Capital has been suspected for years of doing insider trading on Wall Street. In the main instances of insider trading, bankers made billions on fraud during the mortgage bubble. They manipulated the markets and mostly got off with fines. JP Morgan Chase had $9 billion in fines from 2009-12. This was a shocking 12% of its income in that period. But the bank still has yet to see criminal charges!

Hedge fund sharks such as Cohen engaged in insider trading scams that bring Gordon Gekko to mind. Cohen’s fund averaged 30% for two decades and would not be possible without a lot of cheating. Nine employees of SAC have been indicted or implicated in various insider trading scams.

Now the feds are finally coming after Cohen, but some critics of the government are not impressed. They view it as too little too late, after the US government has not taken enough action against big bank corruption. The banks are probably thrilled about Cohen’s prosecution as it takes the heat off of them.

As the Cohen prosecution proceeds, the SEC also is prosecuting Fabrice Tourre, a Goldman Sachs trader that was charged with allowing a hedge fund to take $1 billion from various European banks via a derivatives deal. His bosses got their wrist slapped with a fine. It appears that even though guys like Cohen are getting prosecuted by the feds, many other criminals are still getting away with their crimes.