White Collar Alert
A Legal Blog Focused on White Collar Crime
Bharara’s Fire Dies Out: Cohen Remains Uncharged And Turns His Losses Into Gains
As the chapter closes on the decade-long insider trading investigation of SAC Capital Advisors, our question has finally been answered—at least for now: billionaire hedge fund guru Steven A. Cohen has dodged criminal charges for his role in managing the company now convicted of systemic insider trading. It seems, after all, that Manhattan U.S. Attorney Preet Bharara did not have enough fuel in his fire to engulf Cohen.
What is undisputedly the largest insider trading prosecution in American history, the United States of America v. S.A.C. Capital Advisors, L.P., et al. drew to a close April 10, 2014, as U.S. District Judge Laura Taylor Swain accepted SAC’s guilty plea. SAC will pay an unprecedented $1.8 billion in penalties, serve a probation sentence of five years, wind down its business affairs as an investment advisor for third parties, and retain a compliance consultant to evaluate and report on insider trading compliance procedures.
With a sentence like that, one would think that SAC’s days are numbered. But Cohen has been quick to reinvent himself and christen Point72 Asset Management as the legal successor to SAC, a family office that will assume the reins of Cohen’s investing, trading, and portfolio management. Perhaps in an attempt to get out from under the SEC’s watchful eye, Point72 was specifically founded as a “family office,” a wealth management office that will not be subject to SEC regulation as other investment advisors, such as SAC, are. 17 C.F.R. § 275.202(a)(11)(G)–1. Just how wide a net can a family office cast when soliciting clients, you ask? Point72 will be permitted to invest and manage the money of Cohen’s family members, key employees, certain non-profit organizations, estates, and trusts, and any company owned and operated for the benefit of family clients. Id. And what’s more, key employees include Point72’s executive officers, directors, trustees, and general partners, not to mention employees who have participated in Point72’s investment activities for the past twelve months. Id. Does Point72 sound like a revamped version of SAC? Perhaps, but then again, Cohen’s uncanny ability to turn such massive losses somehow into entrepreneurial opportunities are conceivably the reason behind his seemingly endless success.
To those critics who think that SAC walked away essentially unscathed, the terms of the plea were unequivocally supported by SAC and the Government alike. As the Government wrote in its sentencing memorandum of April 3, 2014:
The $900 million fine imposed on the SAC Entity Defendants pursuant to the Plea Agreement is, to the Government’s knowledge, the largest criminal fine ever imposed in an insider trading case. When combined with the $900 million judgment in the Forfeiture Action, it represents an amount that is several times larger than the illicit gains and avoided losses resulting from the insider trading alleged in the Indictment. This financial penalty, together with the non-financial penalties and considerations set forth in the Plea Agreement, is an appropriate punishment for the criminal conduct at SAC Capital – where eight employees to date have been convicted of insider trading – and provides a strong message of deterrence to other institutions…
Gov’t Sentencing Mem. at 2, United States of America v. S.A.C. Capital Advisors, L.P., et al. (2nd Cir. 2014) (13-CR-00541-LTS).
But alas, prosecutors have left themselves wiggle room. The executed plea agreement unambiguously reserves the right to investigate and pursue charges against other individuals—i.e. Cohen. Id. at 7. So perhaps I spoke too soon, perhaps the question still remains: Will Bharara ever have enough fuel to fire the indictment of Cohen?
