Even though the track record on big-name Federal prosecution is spotty, legal experts will tell you it's never easy or wise to fight the government. Today, few people know that better than billionaire hedge fund manager Steven A. Cohen of SAC Capital Advisors. Just days after being hit with a civil suit by the SEC for failure to supervise, the US attorney from New York has now upped the ante and filed a five count criminal indictment by a Federal grand jury, including four counts of securities fraud and one count of wire fraud.
The 41-page filing charges the Stamford, Connecticut-based firm - but not its owner and namesake - with "criminal responsibility for insider trading offenses committed by numerous employees and made possible by institutional practices that encouraged the widespread solicitation and use of illegal inside information. Unlawful conduct by individual employees and an institutional indifference to that unlawful conduct resulted in insider trading that was substantial, pervasive and on a scale without known precedent in the hedge fund industry."
The latest development comes after a six year long investigation of the trading and information gathering operations at SAC, and included the help of the FBI.
"Anyone who breaks securities law deserves to be punished," says Paul Schatz, president of Heritage Capital, "but it seems like in this case that the government is going so far out of its way to persecute one firm."
While Cohen and SAC are clearly the biggest fish, the government has reportedly charged 80 individuals and firms with insider trading since 2009, of which 73 have been convicted.
Even before the one-two punch of civil and criminal charges being filed, the hedge fund had seen its assets plunge, as investors moved to disassociate themselves with the firm despite its long-standing reputation for delivering results in all market environments. By some accounts, where assets at SAC once topped $15 billion, withdrawals have taken that figure down to the mid-single-digit billions today, and even there, the bulk of that money is purported to be Cohen's own assets.
While part of the criminal case calls for the disgorgement of ill-gotten gains, Wall Street itself might deal another financial blow to the embattled firm long before its day in court. This as Bloomberg reports that several firms, including Deutsche Bank (DB) and Goldman Sachs (GS), are considering suspending their long-standing and lucrative dealings with SAC. At the same time, Dublin, Ireland based drugmaker Elan (ELN) is also suing the hedge fund for insider trading.
For its part, SAC has said it will "vigorously fight" the charges it is facing, but it remains to be seen if the latest salvo against the firm will be enough to take down the ship, or if the ongoing stream of accusations and lawsuits will lead to a high-level surrender.