Cohen Pleads the Fifth

The ongoing saga at SAC continues with the Justice Department calling Steve Cohen's bluff, and Cohen calling theirs right back at them. Cohen's attorney informed prosecutors that he would indeed invoke his Fifth Amendment right against self-incrimination if called before a Grand Jury in the SAC insider trading investigation.

With the deadline to file charges against SAC and/or Cohen fast approaching, the investigation seems to be heading into witch hunt territory. Last week the Justice Department went so far as to say they may charge Cohen even if he didn't know insider trading was going on at SAC, on the basis that he should have known. The net result is that SAC is more or less finished as a public hedge fund.

Cohen has not spoken out about the cloud surrounding his firm, which has led to billions of dollars in redemptions, which will leave SAC with very little outside capital by the end of the year. But the Times reports that Cohen recently told a senior Wall Street executive, “I sleep at night and I didn’t do anything wrong, but that doesn’t mean they can’t ruin my business.”

Nobody really wins in this scenario. A bunch of SAC employees will probably lose their jobs, and whether they get Cohen or not the company he built over the past 20+ years is finished. They may soldier on as a family office, but the pall of a government investigation is difficult to overcome in this business.

Makes me wonder if we shouldn't revisit insider trading laws. It's a different world today than it was even 20 years ago, and it is much harder to draw the line between insider trading and just plain diligent research. I've always considered it a victimless crime anyway.

What do you guys think? Will Justice charge SAC or Cohen by the end of the month? Or will they cook up some scheme to buy more time? There's no question that Cohen did the right thing by taking the Fifth, but will SAC ever recover from the presumption of guilt that implies?

 

I haven't been keeping up on SAC's story, so I don't have an opinion on whether their practices are unethical or not. That said, I definitely disagree with your statement that insider trading is a "victimless crime."

 

They are too far down the rabbit hole to not charge him at this point. On a side note, how on earth do you actually discern what is inside information and what isn't? I'm still confused how when you pay for early us data numbers it isn't inside trading but if it were to 'leak' to you early it would be. Frankly, I think the financial markets have moved so quickly that the regulators simply cannot keep up with everything that has gone on. Besides, most of what regulators do now is politically motivated rather than actual attempts to keep order in the markets. Everything is grandstanding and showboating... to what end?

Honestly, I think it is retarded that from the very beginning they were dogging the hell out of Cohen yet it took... what, a year, for them to even start to go after Corzine for STEALING money. I just don't get it is what I'm saying. Haha.

But yes, I think we absolutely need to look at what we consider insider trading and take a hard look at how markets function nowadays and the sheer speed at which every little thing gets disseminated. Hell, rumors can send the market down 2% with absolutely no validation depending on who picks them up on twitter.

 

Agreed w/ Addinator, I'm much more concerned w/ Corzine. I don't know much about Cohen but of always thought favorably of SAC. And he's right, whatever he did or didn't go, they effectively ruined his company.

Pardon my ignorance, and I am very ignorant on this, but can you really call insider trading victimless if there's someone on the other side of a position without the inside knowledge? Maybe this is in the same boat as screwing insurance companies so NBD to some people, just curious what I'm missing.

 
Best Response
Scott Irish:

Agreed w/ Addinator, I'm much more concerned w/ Corzine. I don't know much about Cohen but of always thought favorably of SAC. And he's right, whatever he did or didn't go, they effectively ruined his company.

Pardon my ignorance, and I am very ignorant on this, but can you really call insider trading victimless if there's someone on the other side of a position without the inside knowledge? Maybe this is in the same boat as screwing insurance companies so NBD to some people, just curious what I'm missing.

It's victimless in the theory that say you have inside information on ABC that will make the stock skyrocket. So you buy a bunch of shares of it. In order for you to buy that many shares, someone else has to want to sell at an agreed upon price between buyer and seller. The seller already wanted to sell those shares so there is no victim in this case.

make it hard to spot the general by working like a soldier
 

Ed, I have been following this story for the past few months or so but I would still like to know why has the government been going so hard against Cohen. Did something happen in the past to warrant such obstination from the govt?

The dragon dozes off in the spirit which is its dwelling.
 
Skinnayyy:
Scott Irish:

Agreed w/ Addinator, I'm much more concerned w/ Corzine. I don't know much about Cohen but of always thought favorably of SAC. And he's right, whatever he did or didn't go, they effectively ruined his company.

Pardon my ignorance, and I am very ignorant on this, but can you really call insider trading victimless if there's someone on the other side of a position without the inside knowledge? Maybe this is in the same boat as screwing insurance companies so NBD to some people, just curious what I'm missing.

It's victimless in the theory that say you have inside information on ABC that will make the stock skyrocket. So you buy a bunch of shares of it. In order for you to buy that many shares, someone else has to want to sell at an agreed upon price between buyer and seller. The seller already wanted to sell those shares so there is no victim in this case.

The price that the shares are sold at is affected.

I'm not necessarily taking a side here, however

 

It's not victimless if you follow the logic completely through (assuming liquidity is good and lack of liquidity is bad);

Market microstructure has a continuum of investors ranging from retail (mum and dads) to sophisticated (institutions/HNWI etc), with differing people in between. If you allow insider-trading the entire 'retail' segment, or 'dumb-money' I guess, would be so perpetually disadvantaged that it would dry up liquidity. Where now it 'may' be rampant, there is still a check on it, without at least some regulation, there is literally no conceivable reason why retail investors would want to use the markets for capital gains/income.

Insider trading does have victims, as that even though that 'one' trade, where you buy someone's stock is fine, the systematic implications are ignored, i.e. you have failed to consider the fact that you're taking liquidity out of the market due to information attained from a source behind a clear barrier (as opposed to extensive due diligence, where you meet the barrier, but then may be able to guess what's on the other side). Thus in an abstract sense you are illegitimately drying up liquidity in the markets. This rips off retail investors. On a systematic level, given that all sophisticated investors will attempt to do this there will be substantial effects on the liquidity of the market as a whole.

Finally considering the range of instruments available for trading, and their popularity, it's obvious that not every security or contract is as liquid. Thus if any of this behaviour did occur in a thinly traded stock for instance, it would lead to investors being trapped; which despite it being the risk they assumed when buying, they did not assume the risk of illegal activity (i.e. insider trading) and it's subsequent effect on liquidity, if this were the case, they probably would not invest, depriving capital from businesses requiring it.

 
JDimon:
Skinnayyy:
Scott Irish:

Agreed w/ Addinator, I'm much more concerned w/ Corzine. I don't know much about Cohen but of always thought favorably of SAC. And he's right, whatever he did or didn't go, they effectively ruined his company.

Pardon my ignorance, and I am very ignorant on this, but can you really call insider trading victimless if there's someone on the other side of a position without the inside knowledge? Maybe this is in the same boat as screwing insurance companies so NBD to some people, just curious what I'm missing.

It's victimless in the theory that say you have inside information on ABC that will make the stock skyrocket. So you buy a bunch of shares of it. In order for you to buy that many shares, someone else has to want to sell at an agreed upon price between buyer and seller. The seller already wanted to sell those shares so there is no victim in this case.

The price that the shares are sold at is affected.

I'm not necessarily taking a side here, however

The price that the shares are then sold at are not affected by the insider trading either. The market determines the prices. The insider just knew what the market was going to do. A buyer then came along and decided to buy the shares out of their own free will at the price the market at that time said they were going to be.

As the poster after me pointed out, that if insider trading were to be legal, then yes, it would create a "victim" by putting up a barrier to entry for the markets. If you are a retail investor trading for yourself then you are at a disadvantage. You would then have to take your money to a money manager and pay fees so they could use their insider information to generate the wealth for you.

Depending on how you want to spin the way an insider traded, you could technically call someone a victim, although it would be very loose.

As it stands right now, there is no true "Victim" in the sense of the definition. a person who suffers from a destructive or injurious action or agency or a person who is deceived or cheated, as by his or her own emotions or ignorance, by the dishonesty of others, or by some impersonal agency

because the people who would be considered the victims in an insider trading deal, are not victims because they went in to the trade out of their own free will. They wanted to sell at that specific time, or they wanted to buy at that specific time. The insider is not being dishonest, they are being unlawful.

make it hard to spot the general by working like a soldier
 
Edmundo Braverman:

This is no longer the case. Mom and pop aren't even in the equation any longer. HFT bots make up more than 50% of average daily volume. As a poster above pointed out, the only entity getting screwed by insider trading is a microprocessor in an HFT farm across the street from the exchange.

Mom and pop aren't even a factor anymore.

Eddie,

I respectfully disagree with insider trading being a "victimless" crime. Forget about the liquidity argument. You don't need to go there to make the case that in fact there are victims in this scheme. The person on the opposite side of the trade is the victim, be it a retail investor, or Steve Cohen himself, it does not matters. When that person/institution made the trade, they did not have the same information as the person with inside information. Thus, they were taken advantage of. They might not know it, since no one knows who is on the opposite side of the trade. But just because they don't know they are the victims, does not means there are no victims. I guess is like that philosophical question about the tree and the sound it makes when no one is there to hear it.

Let's go through a simple example, which is from a real insider trading case. The guy found out that company A was going to acquire company B for a premium of 30%. He proceed to buy call options on the stock of company B at exactly the acquisition price. A week later, after the deal was announced, his call options increased 3000% and he made a killing. Who is the victim here? The trader/person/institution who wrote the call option, they are the victims. Had they had the same information, the price of those call options would have been way different. Just because you don't know you were taken advantage of does not means that you were not taken to the shed. I guarantee you that if you were the one that wrote those call options and you found out that the buyer knew about this deal before it was announced, you would have screamed bloody murder. I agree that insider trading laws are vague and all that, but I disagree with the statement of it being a victimless crime.

 

Andres,

Isn't that a semantic argument, though? Mind you, I'm not disagreeing with you, but imperfect information (or an information deficit) exists on every single trade every day.

You could say that the call writer was "victimized", but believe me -- he thought he was victimizing the call purchaser when he wrote the calls in the first place. I've never been particularly concerned about insider trading, but these days it's even harder for me to see an argument that it isn't just enhanced due diligence.

 

Mollitia saepe placeat et laboriosam explicabo. Est eos quibusdam libero. Et quidem eos rerum et. Et veniam ad laborum odio porro.

Aliquid eum quasi dignissimos aliquid quia accusantium magni nihil. Eos aut quia voluptatem. Amet sint asperiores in ullam.

Eos illo beatae harum beatae culpa sed officiis. Ut aspernatur quo molestias veritatis consectetur. Exercitationem possimus autem corrupti itaque. Rerum quis qui et sequi magnam. Dicta qui sed voluptates.

Qui et dolor quae illo sed accusantium itaque possimus. Iste molestiae soluta blanditiis. Delectus et sunt et harum aut.

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (202) $159
  • Intern/Summer Analyst (144) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
dosk17's picture
dosk17
98.9
6
DrApeman's picture
DrApeman
98.9
7
kanon's picture
kanon
98.9
8
CompBanker's picture
CompBanker
98.9
9
GameTheory's picture
GameTheory
98.9
10
Jamoldo's picture
Jamoldo
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”