On Friday afternoon the Security and Exchange Commission charged hedge fund titan Steven A. Cohen with "Failing to Supervise Portfolio Managers and Prevent Insider Trading." If the charges stand, Cohen could be barred from the securities industry.
Though he'd certainly prefer to have had the issue dismissed entirely, given the scope of the investigation being charged with failure to supervise can only be considered a triumph for Cohen and SAC Capital Advisors. As one Twitter wag put it, the accusation was akin to "charging Lance Armstrong with failure to stop a needle from piercing his skin."
A review of the facts laid out in the order against Cohen on the SEC's website suggests the SEC limited the scope of its charges because it simply doesn't have much on Cohen, at least in this particular case. There are some questionable IM's from Cohen, but nothing close to resembling a smoking gun at least in terms of explicit insider trading or SAC being a criminal enterprise.
The SEC hasn't exactly let Cohen off the hook. The agency won a gargantuan $616 million settlement over insider-trading accusations earlier this year, and reserves the right to pursue Cohen over other matters. Still, a charge of "Failure to Supervise" is the least the SEC could do without simply walking away from the case.
So why didn't the SEC do more? There are a few explanations for the SEC going easy on Cohen:
New SEC head Mary Jo White has bigger things on her plate
White took office as Chairman in April. Suffice it to say she has plenty of things to do. Nothing in White's past or other things she's done in her nascent term suggest she's soft on White Collar crime. Last Thursday White and her team rejected a previously agreed to settlement with another hedge fund manager, Phil Falcone, because it wasn't severe enough for White's liking.
White didn't go soft on Cohen as much as she opted to focus on being very harsh on cases with stronger evidence. If so, it's a smart move in terms of how the SEC is regarded on both Main and Wall Street.
U.S. Attorney for the Southern District of N.Y. Preet Bharara is taking the clear lead on the pursuit of SAC
Bharara has been driving the move to get Cohen all along. It's his office that's been leading the seven-year investigation that has taken down dozens of SAC affiliates. Last week Bharara suggested statutes of limitations in making insider trading charges could be "elongated" in certain instances, implying without mentioning SAC by name that charging an entire organization with insider trading would be unusual, but not out of the question.
The bottom line is that this case is well beyond Cohen himself. It's about taking down the biggest and most powerful of Wall Street insiders. No firm on earth has generated more commissions than SAC. The firm's decades of "too good to be true" performance has raised eyebrows both in and outside Wall Street for years.
The government needs to take down Cohen to justify not just the obsessive and expensive pursuit of this case, but to a lesser degree justify the very point of regulating insider trading in its modern form. It's completely unfair to Steve Cohen, but if his only punishment is public humiliation and massive fines, it won't be seen as exoneration of Cohen but an indictment of the government's ability or willingness to take down the real power brokers on Wall Street.
The SEC may have let Cohen off with a wrist slap for now but the reclusive billionaire is still subject to all sorts of legal beatings later.