This has been expected all week, but it’s official today that Steven Cohen’s hedge fund SAC Capital is going to be hit with criminal charges relating to the insider trading allegations it’s been facing for a while.
You probably don’t care too much about the details of the case. Suffice it to say that if you’re putting yourself in a position to personally suffer investment losses as a result of hedge funds insider trading, you’re investing wrong. But the political signal here is important. In the wake of the Arthur Andersen case, the federal government started really shying away from leveling criminal charges against firms. The financial crisis actually further entrenched that instinct even as many people in the public felt it should push things in the other direction. The view was that criminal cases were unduly destabilizing to the economy as well as being relatively difficult to win. Better to keep them as a vague threat and reach settlements of various kinds.
The appointment of Mary Jo White to be the new SEC chair in Obama’s second term was a pretty clear signal from the top down that there’d be much less of a good cop attitude going forward, but a lot of folks chose to misread this situation on the grounds that between serving in the Clinton administration at a high level and serving in the Obama administration at a high level White did white collar defense. But she’s told her troops to knock it off with neither-admit-nor-deny settlements and now we’ve got the criminal case against SAC. My sense is that this is the right direction to go in, but I’ll admit that my confidence level in that is fairly low. However, this is the kind of job you bring a badass prosecutor in to do—some badass prosecuting. There’s some disquiet that Cohen isn’t personally facing criminal charges here, but based on the accounts I’ve seen he really did structure things so as to make it exceedingly unlikely that he could be convicted of criminal charges. Which is to say he was smart. But he’s looking at pretty serious civil penalties and the destruction of his business.