It's been a rough couple of weeks for Stevie Cohen and his crew, and the situation is growing more "fluid" with each passing day. I kinda kept one eye on it all weekend after the somewhat cryptic announcement on Friday that SAC would no longer be "fully" cooperating with the government's investigation into insider trading at the fund.
Then came the announcement that Cohen himself had been subpoenaed, and the previous announcement was interpreted to mean that he planned to take the Fifth rather than testify before a grand jury.
Now the rumor is that Cohen may be cutting a deal with the feds that would close the fund to outside investors altogether. This deal would include an admission of guilt on the part of SAC in exchange for deferred prosecution (meaning no criminal liability unless the firm were to break the law again).
Predictably, outside investors are already jumping ship and to SAC's credit, they're extending their redemption period to allow investors to get out. In perhaps a sign of things to come, Blackstone is pulling at least some of their money out of SAC. That's gotta be especially disheartening for the guys at SAC, not only because Blackstone is their biggest outside investor but also because Blackstone was one of their staunchest supporters.
It's hard to say what's going to ultimately happen at this point. If the government goes hard in the paint they may try to take Cohen down criminally. I'd say that was highly unlikely if it were any prosecutor other than Preet Bharara, but he really seems to have it in for Cohen.
Any way you slice it, it's a bad deal for the crew over at SAC. Even if some sort of deal is reached and SAC has to close to outside investors, it's going to mean a bunch of guys looking for work.
If anyone has any further insight into what might be going on, I'm all ears.
I don't get why the government is out to get Steve over others. The guy has billions to spend on the best lawyers to make sure this didn't happen and they know that. You would think they'd make better use of their resources going after Dick Fuld (aka "The Folding Dick"). That guy was a serious dirtbag.
In addition, if Cohen was openly committing crimes, why hasn't one of 100 traders that were caught flipped on him or ratted him out? My guess: He pissed off some government figure, possibly foreign who is pressuring the US to get him for some kind of revenge. Even so, he has enough money to pay off Preet Bwahahaha to look the other way.
I'm about 90% sure this is exactly the reason why he's being targeted. Namely Preet.
The other reasoning may be that Cohen is a symbol. Though if that's the case they wouldn't be making a deal. Frankly, if they have proof of insider trading, I will be pretty upset if he idoesn't[/I] go to jail. This is the kind of problems that keeps money out of the markets, and while I know ma and pa are not big, collectively they provide a ton of money for us to take-- but only if they believe the game isn't rigged.
This is a sweet deal for Cohen. So what if he has to shut down SAC? With the$7B he and his partners has in the funds he can readily turn SAC into his personal family office--in fact I am very surprised he hadn't done this already seeing that smaller firms like Schumway already made the changes.
So Cohen & Co. get to keep virtually all the billions they already made over the decades from insider-tradings with full impunity and no risk of any further prosecutions so long as they promise to never do it again? I would take this deal in a heart-beat!
This is a classical example that it pays to skirt the laws. The Fed is slow as it is inept, not to mention full of internal conflicts of interests. With some careful planning you can get away with a lot of stuffs for a long, long time. By the time The Fed finally catch on to your schemes, you've already made off with enough to retire comfortably. It worked for Jay Gatsby and it works for Steve Cohen now. Kudos to him for pulling this off.
^^^ Ironic, but I was kinda thinking the same thing. Of course, the assumption is that his wealth is ill-gotten, which I don't believe (it's hard to cheat that much and get away with it). But seriously, if the reports of the deal are right, it could be a huge get out of jail free card where you get to keep all the money.
Bernie Madoff? This deal makes me angry, I'm all for people who make their own wealth, but insider trading isn't innovative, and it hurts a lot of peope. Hard to like this guy at all....
I'm scratching my head at the last couple of rounds of prosecutions. Let's see, hmmm, the sell side fucks up the world and the gov't goes after the buyside. I'm not sure the government understand how this works, and I'm also confused why they're letting the five year statute of limitations pass on basically everyone involved in the 2007/8 blowout. I'm no fan of insider trading, this just looks like a case of misordered priorities.
This is like the police arresting some random vagrant for a mob hit and letting the bad guys continue to run the strip club.
Honestly, the worst of the banks' contribution to the financial crisis was driven by a really small amount of easily identifiable people, why the gov't hasn't nailed them to the wall baffles me. If you borrow a thousand dollars, the bank owns you. If you borrow a million dollars, you own the bank. If your bank tanks the system to the point of global collapse, you become systemically indespensible, too big to fail, and publicly financed.
Way to go guberment
If you assume for a second that he was dirty at some point in the evolution of SAC and set up a system to protect himself, this looks like the white collar version of a mob investigation. so the feds are just looking for the mistake that can bring down the untouchable boss that thinks he has the system beat.
If he gets charged and gets acquitted, it's going to be a massive fuckup for the government. Trust me, open season for those who wish to do business like SAC is accused to have done. The government losing a case as huge as this would end these types of witch hunts for decades to come.
It's really silly, IMO, for a prosecutor to go after an entire company. There's no way that a fairly mammoth-sized hedge fund like SAC is chock full of Ivy League criminals. The only realistic justification here is that most of SAC's fund are Cohen's, so in some symbolic way, hitting the fund with a charge is the next-best-thing. That said, a lot of innocent people are going to lose jobs over this.
This is such a weak argument. Really?? We're upset that hedge funds incentivize employees to perform well? Obviously, any performance pay structure is going to create incentives for those who are willing to break the rules to act on their impulses. But that's true at every hedge fund - let's stop pretending it's something unique to SAC. There are cheaters in every industry, and there are likely several peppered into the various arms of finance, but that's not cultivated by performance pay, but by personal ethical standards. Holding a company liable is dubious, at best.
Let's face it:
-Much of the country (not all of it, but maybe a majority) hates wall street. -It thinks we got away with making billions in the process of crashing the economy. -It thinks thousands of bankers belong in jail. -It thinks we are becoming an oligarchy of the rich wall street types.
I'm not saying that's true, but I am saying that the optics aren't so good for wall street right now.
See, I can at least understand how people generate antipathy towards Wall Street. But this charge that thousands of bankers belong in jail is just feels disingenuous. No one can honestly believe that thousands of highly educated people conspired against the entire country for the good of their own pocketbook. Not if they've given it any thought.
Americans giving thought to something?
People loved bankers (retail bankers) when they could get approved at low rates with nothing down. Forget the conventional wisdom of 20% down and all that stuff. You know, the stuff you've known since you were a kid. Grown adults just figured cause a bank would lend it to them they should take it. No consequences.
Then the economy slowed down and people couldn't pay for those mortgages. And the banks wanted their homes back. Gasp, how dare they. Then the fair weather friends that all Americans are turned on the banks. How dare they not lend or want their money back after a person fails to honor the contract.
The affection of the vast majority of the proletariat is that of a house cat. Love you when they want something, could care less when they don't. I personally rather be hated by a group of flighty people such as that, but hey, that's just me.
All you guys on Wall Street watch out. Bunch of people with pitchforks will roll up to JPM's IBD headquarters demanding their money back since that is the extent the sheeple understand of finance and banking.
All the money in the world won't stop the government from convicting you. I'm sure Raj had a team of lawyers that would make OJ envious and he is still behind bars. When Uncle Sam comes for his pound of flesh it is best to simply fuel up the jet and go to another country.
LOL. I'm a small fry and my passport was always in my top desk drawer.
Yea, but Raj broke the law and OJ was clearly innocent.
Land of the "free". That is until the government has a witch hunt against you.
http://www.businessinsider.com/rico-law-could-be-used-against-sac-2013-5
Thoughts? Are they really going to use RICO here? I'm no lawyer, but this seems a bit absurd.
Wow. RICO's a stretch, and it's just a ploy to buy prosecutors more time. If they go that route, that's pretty fucked up.
If SAC is engaging in widespread insider trading to the extent of Drexel-Burnham, there's precedent on the order of a firm that was bigger than Morgan Stanley.
I can speak from experience that if the firm you work for goes bankrupt in a public, notorious, and spectacular way, it sets your career back, but it's not the end of the world. I feel bad for the innocent people caught in the middle of this, but employers also know it's not your fault that you're unemployed and looking for work if the entire company goes bankrupt and you're generally at the front of the line trying to get a job elsewhere, especially with a major bank or hedge fund on your resume.
I do feel bad for anybody who get caught up in this but never did anything wrong. There will be a little bit of collateral damage. Hopefully Bharara will make up for having it in for Wall Street by at least being surgical about the people he implicates. I'm all for going after Cohen and trying to get half a decade of jail time and asset forfeitures if he was running all of this; I'm just not for dragging too many innocent people in to testify.
http://en.wikipedia.org/wiki/Drexel_Burnham_Lambert#Downfall
Thanks Illini, I appreciate you posting that. I'll be honest, I had never read up that diligently on Drexel-Burnham.
There's still folks on the street who worked for Drexel Burnham- or remember Drexel Burnham well. Heck, it was only about 25 years ago. There are probably people on your team who will remember it well, and if your firm has more than a few thousand people in the US, there are probably people at your firm who WORKED for Drexel Burnham.
I was always fascinated by US economic history. In 2008, we lost 28% in a week, and everyone wants to talk about that. Nobody today talks about the fact that in 1987, we lost 35% in A DAY, that a major brokerage firm went bankrupt in that (EF Hutton) and in 1990 a firm bigger than Morgan Stanley went bankrupt in one of the biggest insider trading scandals in US history.
Remember Drexel? Hell, I invited Ivan Boesky to my second wedding (true story).
Also, on the RICO thing, I don't think it's fucked up to invoke RICO if there's an actual RICO case. Where I have a problem with it is if the prosecutors are just using it to reset the shot clock because they're running out of time.
Hey, is the Boesky bit in the book? That's COOL
Drexel Burnham, with 10k employees, was brought down by two instances of insider trading by Rudy Giuliani of all people.
Whether or not SAC shares its culture with the rest of industry isn't the law's concern with respect to SAC. SAC's internal controls and culture have repeatedly failed to prevent insider trading, ergo RICO is in play.
The US has these crazy things called laws that actually have to be obeyed by everybody, including rich people and corporations. If employees repeatedly break those laws, the company gets shut down. If Target employees started stocking store shelves at multiple locations with Cocaine for sale at the register and the employees pled guilty to it, Target would also risk getting hit by RICO. The US isn't a country that forces taxpayers to prove they earned less than $X, and we don't consider people guilty until proven innocent, but if your company seems to be doing illegal stuff on a regular basis, we have the authority to force you to suspend operations. In the case of a bank or a hedge fund, that means people can't get their money out. Remember, I think this is a civil procedure, not a criminal one, so we don't have to PROVE it we just have to show a lot of evidence that it's PROBABLY going on (which it seems to be). We're not sending anybody to jail- we're not issuing any fines- we're just stopping a business that is PROBABLY engaging in systematic illegality.
IIRC, you also advocated against enforcing insider trading against Rajat Gupta, claiming the government hadn't made its case. Yet a jury of his peers unanimously found Rajat guilty beyond all reasonable doubt. Basically what it sounds like here is that you want to nullify insider trading laws and other financial regulations by saying that they're impossible to prove or that enforcing them is ridiculous.
I'm not trying to be a hardass here, but if you really believe an entire sector of the economy is above the law, maybe you should move to another country (EG China) where this can work better for you?
And... you're saying that's a good thing? Because from a legal precedent standpoint, you couldn't have picked something less relevant. Giuliani's hardball against corporations wouldn't be tolerated in a post-Arthur Andersen vs. US world.
Exactly what punitive effects to you expect to arise from prosecuting legal fictions? Are you thinking that future hedge fund employees will decide not to trade on MNPI because they have such fierce brand loyalty to their firm and wouldn't want to see any reputational harm outside of... you know... them going to jail?
Shutting down Arthur Andersen has no meaningful effect other than costing thousands of people their jobs and retirement savings. It's political grandstanding at its finest, which is why the Arthur Andersen conviction was overturned by a unanimous 9-0 vote of the Supreme Court, and why the DOJ decided not to retry the case. Sadly, the former employees of Andersen will see none of the gains from their posthumous legal victories.
As others have mentioned, RICO is a reach, at best. Exactly what "internal controls" can prevent secret rings of insider trading at a 1,000+ person firm? As we have seen time and again with banks, unscrupulous emails go unchecked all the time when you are tasked with monitoring hundreds of thousands of email messages. And SAC paid (in the form of the largest insider trading settlement of all time) for those instances.
You can't, however, eradicate cheaters from any organization. Target will sometimes employ thieves, airlines with sometimes employ alcoholic pilots, auditors will sometimes employ unethical partners, Wal-mart will sometimes employ managers that bribe foreign government officials, mutli-level marketers will sometimes employ people that run mini-pyramid schemes within the organization, the FDA will sometimes employ unscrupulous drug testers that "pass" unsafe drugs, apartment management companies will sometimes employ landlords that steal from their tenants, MROs will sometimes employ maintenance workers that perform inadequate checks on equipment that lead to plane crashes, bus companies will sometimes employ unsafe drivers, photo studios will sometimes employ photographers that turn out to be sex offenders, the police will sometimes employ corrupt officers, drug lords will sometimes employ minions that back-stab them, and - heaven forbid - hedge funds will sometimes employ people that trade on MNPI.
More importantly, SAC isn't set up like a traditional fund. As noted earlier, the firm operates much more like >70 independent funds that manage a small chunk of the firm's money. SAC, then, is much more a FoF than a HF in and of itself. CR Intrinsic and Sigma were implicated in insider trading investigations, but what of all the other licit funds within the SAC organization? Shall they be punished as well?
You have yet to explain how SAC "probably engages in systematic illegality". What is it about SAC that promotes insider trading vs. an innocent HF?
You must be thinking of someone else, because I don't think this was me.
Look, I'm not against individual culpability. I believe that people who commit crimes should go to jail. It's all this ancillary fuming that has been spurred by the blood-thirsty anti-Wall Street movement that is spurious. The regional bank employees that permitted obviously illegal money laundering HSBC should be prosecuted. If Steve Cohen traded on MNPI, he should go to jail (whether or not trading on MNPI should be illegal is irrelevant). If Martoma, et al traded on MNPI, they should go to jail.
Here's where I differ from you:
1) I don't think that prosecuting legal fictions is productive, and it doesn't serve any punitive purpose. Who are we punishing in the SAC case, and what are we hoping the windfall from its prosecution will be?
2) I don't think that holding people who have no realistic relationship with illegal activities should be punished. That means that the thousands of Arthur Andersen employees who did not approve improper audits should not lose their jobs. That means that the thousands of airline employees who did not drink and fly should not lose their jobs. And that means that the CEO of HSBC shouldn't be tried for activities he couldn't have reasonably overseen in the regular course of his job.
So Target only puts Cocaine on store shelves at 10% of its stores, and it's only the store managers who are doing it, not rank and file employees. Said Cocaine accounts for a reasonable share of Target's net operating profits, but the CEO knows nothing about it and we shouldn't shut Target down because that would hurt employees.
I'm sorry, but you need to give this up.
I'm saying that we have laws for a reason- they're there to prevent harm. We could either keep screwing investors and undermine confidence in the markets, and pay the government a huge fine that said investors will never see, or we could just avoid screwing investors and avoid paying the government a fine and not undermine confidence in the markets.Incidentally, Steve Cohen's ex-wife Patricia also filed a racketeering lawsuit against him back in 2009, accusing him of insider-trading in 1985 (!) and hiding the $10 million in illicit profits he earned.
There has been a lot of bad blood between Steve Cohen and his ex-wife. Still if her allegation is true, it would mean that Steve Cohen has been systematically profiting from material non-public information throughout his entire career, well before he set up SAC in 1992.
I think this thread nicely serves to answer the question from a previous thread posted a few days ago, which I've linked below for your convenience.
http://www.wallstreetoasis.com/blog/should-you-cheat
Feelings towards Mr. Cohen? Zero sympathy. Sorry, guy.
NorthSider, you should give Lanny Breuer a call. He probably would love to have you at C&B.
I'm not directing this at you, but Breuer gets a ton of crap from people who know nothing more about the cases he prosecuted than what they read on the news - which they stupefyingly believe to be an accurate portrayal of the facts.
I'm sure Breuer had grand dreams of becoming this generation's Giuliani or Spitzer or Warren. Instead, he had Warren screaming at him and the public disdaining him. But something tells me that he understands the cases and the ability to prosecute just a tad better than the media. That said, who doesn't love a good conspiracy theory?
Ok, so I'm guessing the deal here is that NorthSider works for SAC or has the last name of Cohen. He keeps telling us we know nothing of the situation and seems to be fairly obsessed with this thread. Iff he doesn't work at SAC, he keeps an... obsessive level of information about them.
I say let's back off. Back in 2008, when my firm was going BK, I was convinced along with everyone else that Goldman Sachs was trying to bankrupt us rather than that our firm had a serious risk issue with a terribly illiquid asset.
It turned out Goldman had nothing to do with it, but a lot of us still held grudges we couldn't really explain. Let's not contribute to those grudges at SAC more than they have to be contributed to.
I will just leave with the fact that innocent companies shut down all the time and innocent employees lose their jobs all the time. Employers get that. Losing your job because your firm went bankrupt is eons better than losing your job due to layoffs, which is eons better than being fired for cause, and those employees usually get snapped up pretty quick and often in the same or better jobs than what they had. I hope that doesn't have to happen with SAC and I wish the firm well to the extent that it does abide by insider trading laws.
Wonderful to see someone drop in to toss a personal jab into this thread. Illini's mature, fact-based arguments were missing some of that dramatic flair.
Incidentally, I love how defending innocent people can be written off as "blind love of Wall Street" these days. That's right, folks, this Wall Street flag-waver believes that the CEO of a multinational corporation shouldn't be tossed in jail because a couple regional branches in Mexico failed to report money laundering, a reality of which he was surely unaware. He also believes that thousands of talented, law-abiding PMs and analysts shouldn't lose their jobs and have their reputations called into question because of the independent actions of people working in other parts of the organization.
People on Wall Street are on the receiving end of much undeserved venom. There are a few individuals who deserve that spite, and they should be thrown in jail. For the rest of them, they deserve people who are willing to stick their neck out and defend their innocence. If that means that Duff feels the need to take a personal jab every here and there, so be it.
Alas, the word "innocent" is the last thing that the media want to publish: how can they sustain their sensational tale if people - everyone! - isn't guilty, guilty, guilty?
If calling that "blind affection" makes you feel more comfortable with your point of view, more power to you.
I will happily defend any organization against which the media / public are unreasonably attacking. Unlike many in this thread, when I defend / attack an organization, I like to - you know - actually know a little bit about how that organization operates and what it stands accused of
I also advocate that the government enforce the law. That means that individuals who break the law should be punished according to the severity of their crime. Such penalties have obvious and observed deterrent effects against future crime and are a necessary part of a working free market. Deflecting unsuccessful cases against individuals onto legal organizations for no useful purpose other than retribution is silly, at best.
If Steve Cohen is guilty, send him to jail. The withdrawal of Cohen's money from the fund would doubtlessly break the fund up anyways. If he isn't guilty, and we're relying on 2-3 instances of independent individuals creating their own schemes, applied on their own individual carve-outs of a fund with >70 pods spread across several offices, I submit to you that applying RICO is absurd.
Your experience at Lehman has no relationship with the ongoing events at SAC. No one on this thread is cooking up conspiracy theories about how some other hedge fund is trying to bring SAC down. Lehman went bankrupt, SAC is being charged (on this thread) with racketeering - forgive me if I think future employers would react differently.
It is comforting, however, to see the evolution of this thread: just a few posts ago, people were declaring that "racketeering charges are justified against SAC" and that SAC "systematically encourages and facilitates illegal activities". Slowly, that charge changed to "SAC failed to prevent insider trading", and now it appears to be, "Let's see how this shakes out and make our judgments re: racketeering when we get more detail." That's much more reasonable, and I'm happy leaving it at that.
I think you are the one that is deliberately not paying attention to what is really going here. If you did half as much research on SAC as you claimed, you would notice the very unusual Pod like structure it employs which directly results in a culture that literally forces its employees to seek out and trade on material non-public information.
This article is a good primer on that: http://www.bloomberg.com/news/2010-11-24/sac-eat-what-you-kill-culture-…
RICO or otherwise the Fed has enough tools at its disposal to not only force SAC to shut down but also for Cohen and others to disgorge substantially all their earnings from insider trading, of which there would be billions.
That is all I am going to say on the subject. Feel free to believe that SAC can be saved if that makes you happy. Just so you know that, if you are angling for a job opening there, it likely won't happen unless you have expertise as a bankruptcy or liquidation trustee.
NS the bottom line is that you don't seem to believe in any rules for Wall Street. That works great until the public starts getting out guillotines.
You seem to be standing alone on this- a little rigidly and obsessively I might add. And we've moved into the postmodern era where facts and reason don't matter as much as perception. Whether or not Bharara can make a case against SAC doesn't matter so much as the perception that SAC engages in insider trading and that SAC, though it's own internal policies, had the ability to avoid developing a reputation for insider trading but allowed that reputation to develop anyways.
I say we let SAC be the scapegoat, as was my firm five years ago. It's really not a big deal and there will be many more scapegoats. I really don't feel too too bad for a bunch of bankers or for a bunch of hedge fund principals losing their jobs, and part of the deal when you sign on for one of these higher paying jobs is that you're being paid a risk premium for the fact that the firm could blow up.
No northsider, we're accusing you of being one of those OCD Ron Paul types with respect to SAC and market regulation, or that 12 year old kid who spoke at the Republican National Convention in 2008. These ideas that you shouldn't punish companies are all great in theory, but they don't work so well in practice when it comes to incentivizing people to be good.
Some regulation is ok.
Some regulation is fine. Destroying organizations based on the wrong-doings of a few independently acting individuals is an entirely different story.
You have yet to explain how indicting the SAC corporate entity achieves anything re: "incentivizing people to be good". You don't think the whole going-to-jail thing accomplishes that?
If the entire corporate entity is at risk when individuals break the law while acting on the company's behalf, and not just the individual who broke the law, then a corporation is incentivized to put into place stringent self-regulation to prevent such an occurance.
After all, if the consequences for insider trading by a firm's employees are limited only to the employee's themselves, why wouldn't the firm condone the practice until the employees are caught, and point the finger at the offenders and let them take the blame?
What this all really boils down to is that I am considerably less likely than Illini, Duff and Brandon to believe that an entire organization / large business / industry is collectively "criminal" and "evil". It really has nothing to do with Wall Street, as I would feel the same way about large airlines, oil companies, hospitals, drug companies, governmental bureaucracies, etc.
5 people can run an insider trading ring, or perform fraudulent audits, or rob banks, etc. A 10,000 person organization cannot collectively accomplish that so effortlessly.
If you know how banks are structured, you would realize that the vast majority of HSBC employees have no realistic proximity to money laundering activities at a branch in Mexico. If you know how airlines are managed, you would realize that the vast majority of American employees have no realistic proximity to the manner in which maintenance crews replace DC-10 engines. If you know how oil companies are structured, you would know that the vast majority of Exxon employees have no realistic proximity to whether or not the captain of one of its ships is an alcoholic. And, if you know how multi-manager hedge funds are structured, you would realize that most investment professionals have no idea what exposure / research / positions the other PMs within the broader fund have. In any of these cases,
I don't anyone is saying that the organization is "evil" or "criminal". I am saying that the firm is responsible for the actions of its employees.
That's what management is for, and paid the big bucks to do. If the excuse is "we're too big to manage", then the organization shouldn't be allowed to be that big and should be broken up.
That's precisely what they are saying. RICO laws are designed to bring down criminal organizations. Make no mistake, you are calling SAC a criminal organization.
Then you should get started dismantling the entire Fortune 500, because every single one of those organizations is "too big to manage". Human beings are only capable of monitoring and keeping up with ~150 other people in their close proximity. As soon as the organization starts to get orders of magnitude larger than that, no small group of individuals can reasonably be expected to oversee entire companies. Management is not paid big bucks to play Big Brother, they are paid to plan the strategic direction of a company.
Compliance and legal are paid to enforce the corporate and legal statutes that are relevant to an organization. And even the largest and most sophisticated compliance departments aren't able to weed out all cases of wrong-doing.
To take an example that might hit closer to home for the people on this thread: rogue trading is a fairly regular occurrence at large broker-dealers. Despite massive compliance departments, individuals are sometimes able to circumvent policies and commit fraud. This is not a valid argument to shut down Merrill Lynch or Morgan Stanley. But it is a lesson on how to become more effective at compliance in the future.
Wow. That really takes me back...
And nobody ever called it "The Golden Pitchbook", buncha losers. That thing was called the ProBroker.
Northsider is relentless. At least he's articulate and puts together reasonable arguments. My opinion of his viewpoint has moved from "No, you're wrong" at the start of the thread to "Well, I can see where you're coming from, but I still mostly disagree" by the end.
I think NorthSider wins the award for most talkative poster...too bad that won't save SAC.
I wish I had some sympathy for them...but I do not.
I am by no means an expert of corporate law nor criminal law, nor a lawyer, so I was providing mostly my own viewpoints prior to this. Yet even the most basic google search provides plenty of support for the fact that employers are liable for the actions of employees in the situation I outlined.
Apparently there is this legal doctrine known as "respondeat superior", that holds an employer or principal legally responsible for the wrongful acts of an employee or agent, if such acts occur within the scope of the employment or agency. (www.law.cornell.edu/wex/respondeat_superior) That's pretty straight forward right? If your employee commits a wrongdoing during the course of their work (civil or criminal), the employer also has responsibility.
In addition, there is another legal doctrine known as "enterprise liability", under which individual entities can be held jointly liable for some action on the basis of being part of a shared enterprise. So because part of KPMG or Arthur Anderson conducted wrongdoing, then the rest of the enterprise also faces the consequences.
http://www.lorandoslaw.com/FAQ/Corporate-Criminal-Liability.shtml
http://smallbusiness.findlaw.com/liability-and-insurance/an-employer-s-…
The legal doctrine of Respondeat superior is applied with a much greater burden of proof than you have suggested throughout this thread. Hence, my suggestion above that your views are on the extreme fringe of modern legal theory and corporate law practices. Larry Thompson's (a proponent of corporate criminal cases, as I noted above) comments that I quoted in my previous post are actually in response to his belief (which is echoed by 98%+ of the legal community) that strict interpretation of Respondeat superior is at once unfair and unreasonable in a world of global corporate enterprises.
That's why AMR wouldn't be charged with criminal offenses for the fraud of one of its mechanical ground crews. That's also why KPMG was given a deferred prosecution agreement and not charged with criminal offenses when a group of its employees were criminally charged with tax fraud. In the world of modern corporate law, unless a corporation is proven to hold woefully inadequate supervision and/or compliance policies (and in some cases, even if it does), it can use its supervisory policies as an affirmative defense against criminal litigation. Civil penalties and punitive damages paid to non-government plaintiffs serve as incentives for corporations to implement and oversee effective employee supervisory, training and compliance departments. Indeed, this has been the primary modus operandi of government litigators in the last several decades. Only in rare cases of (what are now widely considered to be) prosecutorial overreach, as with DBL and Arthur Andersen, have large enterprises been taken down for the conduct of a few.
Moreover, a considerable faction of the legal community contend (represented by David Pitofsky above) that corporate criminal litigation is pointless, serves no deterrent purpose and confers a substantial harm upon almost all innocent parties involved. I find these arguments extremely persuasive, and side with them. One thing is for sure, though: vanashingly few corporate litigators would side with your more extreme viewpoints that entire corporations ought be charged for the conduct of a few.
I submit to you that your arguments are fully consistent, and merely express an unusually strict interpretation Respondeat superior (as your Google searches confirmed for you). I applaud you for not waffling, and you're certainly welcome to hold those views (+1 for that, alone), but we would live in a very different world if your proscriptions were widely applied.
I would argue that never holding the corporation accountable when its employee commit criminal acts in the course of their job is equally extreme. Are the employees not part of the corporation? Is there a one-sided relationship between a company and its employee, when the company can benefit from the employees labor but never face any consequences for the employee's wrongdoings?
The defense that a company should never face any consequences because "innocent parties" are harmed is logically unsound. You could apply the logic to any situation as a defense for why a punishment is unwarranted. "You can't put a murderer in jail because you are punishing the murderer's innocent child, who will grow up without a father/mother".
I believe my assertion and argument that a company should have accountability for it's employees is both fair and reasonable, and well within acceptable legal doctrines. A company should face the charges, let the facts speak for themselves, and be subject to the appropriate penalties commiserate with any violations. What's unreasonable or extreme about that?
You claim that corporate criminal litigation is pointless and services no deterrent purpose. I think the exact opposite is true. Not holding companies accountable for criminal activities of its employees would enable or encourage companies to have loose controls over its employees, as it allows them to benefit from any bad behavior while suffering none of the consequences if found out.
Taking the SAC example. SAC already faced civil penalties for the insider trading offenses of its PMs. I believe that would be the appropriate penalty if SAC did not know about the insider trading offenses and suffered from only lax compliance. However, if SAC did in fact know about the insider trading (e.g. Cohen having knowledge / acted on insider information) and didn't do anything about it, then the firm crossed into criminal activity territory. Should the firm definitely shutdown? I think that depends on the severity of the actions. Should the firm at least face the criminal charges and allow the facts to speak for themselves? Definitely.
Fuck SAC.
Well said. I see no reason why they should be able to not play by the rules and still have a seat at the table.
http://www.youtube.com/embed/N7hG6mx0csE?feature=player_detailpage
Well, looks like SAC's life is down to a few days now that another exec has been subpoenaed:
http://www.finalternatives.com/node/23769
I feel bad for the (likely) hundreds of guys that are going to be hitting the streets in the next couple weeks.
There's a lot of innocent collateral damage that happens when a firm blows up in a notorious and ugly way. But they're losing their jobs, not getting shot, nor getting sent to jail. (CC the French Revolution)
If Cohen's guilty, he needs to cut a deal fast. I think the public mostly wants to see him publicly shamed- led off in an orange shirt and forced to spend 18 months in prison- and then reduced to an upper-middle-class lifestyle for the rest of his life. I think the punishment contemplated for serial insider trading, however, looks more like 20-30 years. If Cohen pleads guilty, I think the assumption will be that much of his wealth came from insider information.
If he's not guilty, he needs to come out swinging and start showing that Bharara is crazy for thinking his organization engages in insider trading and how this is a witch hunt.
Look, I'm not a crazy law and order type. But rules are rules and they need to be enforced. Punishments need to be handed down, ill-gotten gains need to be given up and the public needs to feel that bankers are treated no differently by the law than the guy who steals an ATM from the corner convenience store.
The kindest thing bankers can do for themselves here is to either hope Cohen can show he's not guilty or for him to cut a plea deal that has him spend just enough time in prison- and not a day longer- to convince the public that bankers are no different than the general public and that the justice system in the US hits bankers as hard as it hits members of the middle-class.
I may be speaking too soon, and I hate to burst your bubble, but the way events are transpiring right now, it would appear that SAC is working towards a deferred prosecution agreement. I can't see any other reason for the fund to be contemplating returning all outside money other than to reach a deal with the government. Possibly the company decided that the impending redemptions eliminate the utility of outside money and want to reorganize the fund independent of the investigation? Seems dubious that they'd be spending time thinking about reorganizing the business amidst the investigation.
If it reaches an agreement with the government and RICO is not applied, then the prosecutors are winding down on the number of weeks left to formally charge Cohen. One thing is for sure: we will have a lot of answers, and we will have them soon.
Re: your arguments here. 1,000+ organizations don't "engage" in criminal activities (unless the business of the organization is explicitly illegal); people do. Charging Cohen, et al. will show that "bankers" (a strange term, in this case) are treated the same as everyone else. Charging SAC will show that... the government won't stand for... brand names associated with individual criminals? I guess? It's a symbolic victory, at best. And one that the government appears to be moving away from. We shall see.
They want to maintain the perception that they are a going concern. Losing that perception means they lose employees, vendors, customers; everybody. This is Business 101. If the company is probably going to be forced to be shut down, don't admit it or it will certainly be forced to shut down.
Trust me, I've been there done that. You can't trust what management is saying when there's a prospect of the firm shutting down; you have to trust what you actually see. Actually, 2nd-hand or 3rd-hand information from rank-and-file employees tends to be the most accurate and useful information you'll get on the firm. One of your good friends told you his good friend from division A got drunk with a high-ranking MD and heard the firm's 3rd quarter numbers would be terrible? Trust that, not the rosy words from management.
Those who work at SAC probably hate me for everything I'm saying, but if SAC really does go bust, they'll thank me later. And it's important to remember that doom for SAC doesn't really mean doom for its employees, especially its rank and file employees who were a little more removed from this.
I'm seeing, at least from the outside, a waterfall of people cutting plea bargains on insider trading charges. Why would they cut a plea bargain if they were innocent? Why would so many people at one firm plead guilty unless there was a general culture of insider trading going on there?
Is Cohen going to take it up the butt?
I don't think there's much insider info in the slammer.
LOL. Personally I won't mind spending 5 years in a minimum security, white collar prison if it means I get to keep $5 B in illicitly obtained profits. Actually thinking about it, prison really ain't all that bad: you get a free room, free food and free sex...oh well 2 out of 3 ain't that bad. Heck, I might even consider doing 5 years in prison in exchange or $500 mm (in current US dollars) in ill gotten gains, thou not much less than that...
nah, I wouldn't. 5 years of my life >> any amount of money. Though I suppose it would depend on which 5 years of my life.
Also, as somebody who is on the upper side of middle-class in his late 20s, I think the most painful aspect of any punishment that is going to hit Cohen is going to be time. Given ten years, you can earn back anything that you were legally entitled to in the first place- the one thing you can't get back is time.
http://dealbook.nytimes.com/2013/05/28/sac-could-give-the-justice-dept-…
In case you guys haven't seen the latest Dealbook article.
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