For Senior Executives On Wall Street, Crime Always Pays
In corporate America, and especially on Wall Street, crime always pays. Back in 2014, SAC Capital Advisers, the highly successful hedge fund run by its namesake, Steven A. Cohen, agreed to plead guilty to insider trading and pay a $1.2 billion fine. In addition, SAC agreed that it would no longer manage other people’s money. In doing so, SAC became the first Wall Street firm in decades to actually admit criminal wrongdoing. As then US Attorney Preet Bharara declared, insider trading was the lifeblood of the firm, “substantial, pervasive and on a scale without precedent in the history of hedge funds.”
The case against SAC was large and solid. At least six SAC traders plead guilty to criminal charges. Cohen himself was deeply implicated as well, directing his top trader to unload the firm’s large position in a drug company as discreetly as possible after receiving an insider tip that the drug company’s cancer drug clinical trial had run into problems. While there was mountains of circumstantial evidence against Cohen, he was never criminally charged.
Instead, he was able to take the billions he had made as sole owner of SAC and trade for his own account under a successor firm to SAC, which Cohen shut down, called Point72 Asset Management. In 2016, Cohen settled a civil suit with the SEC in which he admitted he had failed to properly manage the trader who had passed along the insider information to Cohen, a trader who is serving nine years in jail for his insider trading crimes. That settlement blocked Cohen from managing other people’s money for just two years.
That two year ban ends at the end of 2017 and Cohen is already positioning himself to get back in the hedge fund game, making a surprise appearance at Anthony Scaramucci’s SkyBridge Alternatives Conference (SALT), the big annual hedge fund get together earlier this year. Cohen had already set up a Point72 subsidiary called Stamford Harbor Capital which some feel will be the vehicle he will use to raise funds from outside investors and restart his hedge fund business. Since it is a separate firm from SAC, it avoids the ban that was imposed on SAC in its guilty plea.
It’s a pretty good deal for a man that basically ran a criminal organization. The criminal legacy of SAC continues to this day. Earlier this year, a case that accused SAC and other hedge funds for illegally conspiring to drive down the shares of a Canadian insurer was allowed to go forward. As Bharara said, SAC was a “magnet for market cheaters”. On Wall Street, that comment is probably considered a badge of honor. Like JPMorgan and Wells Fargo, the fact that Cohen avoided any serious penalty and will soon be back in the game only proves that, for senior executives on Wall Street, crime always pays.
