The Hunted Billionaire

It’s not often that a billionaire can feel the same way as someone on death row, but there’s probably some slight similarity to that gut-wrenching anxiety and stress of a prisoner that Steve Cohen, CEO of SAC Capital Investors, is feeling these days. Cohen, the hedge fund master of SAC Capital Investors, has been the target of a federal investigation in illegal securities trading for the last eight years. His case is an example of how long the federal government can take to bring a case against a hedge fund manager, particularly one with a high profile status such as Cohen.

Steve Cohen began life as a trader in 1978, showing early promise in the stock market game. His first day was punctuated by a closing profit of $8,000 in commissions, and his annual pay soon reached $100,000 annually, which was quite an early paycheck at the time. Ultimately, Cohen established SAC Capital Investors in 1992 and amassed a portfolio totaling over $14 billion today. In the same vein, Cohen himself has now grown his salary to as much as $600 million annually. His success at trading was so pronounced, Cohen was dubbed the Hedge Fund King in 2006 by the industry.

Unfortunately, the large amassing of resources and success may not be enough to fend off the federal government. The U.S. Department of Justice and the Securities Exchange Commission have been methodically continuing an investigation that to date has brought multiple convictions of persons who have either worked closely with Cohen or for him. In every case, the common theme has been insider trading resulting in billions of dollars of illegal profit in stock trading through hedge funds.

With each new arrest, the suspect du jour is then pressured to squeal on a supervisor or manager in exchange for leniency in a settlement or plea bargain for a lesser punishment. At some point, the authorities are likely hoping that one of the individuals arrested will provide a solid case against the Hedge Fund King.

The problem for Cohen is that the criminal definition of illegal insider trading is vague, leaving plenty of room for interpretation. Further, the Justice Department won’t bring a case unless it is sure it will win hands down. This is why the agency has a 97 percent win rate of which it is very proud. Most white collar criminal cases never see trial but instead are dismissed as plea bargains.

Should Cohen be taken down by the simple verbal statements of others looking to plea bargain their own jail sentences to lesser durations, the case would then mark one of the biggest wins the Department of Justice will have made against illegal activity on Wall Street. That result will have a chilling effect on any other remaining hedge fund masters, wondering if their accounts, associates, and emails are next. The case also reinforces that hedge fund managers have to proactively watch who they, and their people, talk to as the definition of insider trading is clearly moving into the control of the government prosecutors – given the wins in court so far.

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