Preet Bharara, U.S. Attorney for the Southern District of New York, announced on Monday that SAC Capital Advisors and related companies had agreed to pay record penalties and to plead guilty to criminal insider-trading charges. SAC has also agreed to shut down its business of managing other people's money.
But in this settlement, assuming it is approved by a judge, no individuals will plead guilty to anything. SAC will pay $1.8 billion, including more than $600 million it agreed to pay in a related settlement earlier this year with the Securities and Exchange Commission. Few people expect criminal charges to be filed against SAC founder and CEO Stephen A. Cohen.
Therefore, after a multiyear investigation, the legal conclusion seems to be that Mr. Cohen is a noncriminal running a criminal enterprise. In a Monday statement, Mr. Bharara claimed that "individual guilt is not the whole of our mission. Sometimes, blameworthy institutions need to be held accountable too. No institution should rest easy in the belief that it is too big to jail."
U.S. Attorney for the Southern District of New York, Preet Bharara Getty Images
But institutions don't rest, don't believe and certainly don't go to jail. People do. And if—without much in the way of cooperating witnesses or wiretaps—Mr. Bharara has decided he can't make a case against Mr. Cohen, will he now slap the cuffs and an orange jumpsuit on SAC's Stamford, Connecticut headquarters?
On Monday George Venizelos, Assistant Director-in-Charge of the FBI's New York field office, employed the passive voice to describe this phenomenon of crimes without criminals: "What SAC Capital's plea demonstrates is that cheating and breaking the law were not only permitted but allowed to persist." But who allowed them to persist?
It's true that six former SAC employees have pleaded guilty to insider trading and two more criminal trials of individuals are on the horizon. But as far as who allowed crimes to occur in a firm of roughly 1,000 employees, that question will apparently remain unresolved.
The SEC has a pending civil case against Mr. Cohen for a failure to supervise. No trial date has been set, and if one ever occurs, it might shed some light on how he managed the firm. But the SEC would only have to prove negligence, not intent, so even a finding of liability wouldn't answer the question of whether this outlaw organization was actually run by an outlaw.
Whether there are any victims to SAC's crimes may be an even harder question to answer. Mr. Bharara couldn't name any at his Monday press conference, because they are theoretical. The prosecutor spoke of people who believe the markets are fair and that investors all play by the same rules. Others would argue that investors view as most fair a market in which prices reflect all available information and are therefore more accurate, or perhaps one in which investors, not regulators, decide what kind of disclosure they require.
Perhaps hazier still is the public understanding of what exactly insider trading is. After his recent win in a civil insider-trading case against the SEC, billionaire Mark Cuban noted that there are "no bright-line rules" and added of the SEC, "They regulate through litigation."
Illegal insider trading is generally understood to be trading securities on material nonpublic information by a fiduciary or someone in a position of trust, but it's never been precisely defined. The Securities and Exchange Commission notes that "Insider trading violations may also include 'tipping' such information, securities trading by the person 'tipped,' and securities trading by those who misappropriate such information."
The SAC case centered on this gray area of tips, and of course Monday's settlement involved the Department of Justice and criminal charges, where the government must clear a much higher bar than in the SEC's civil cases. At trial Mr. Bharara would have had to prove guilt beyond a reasonable doubt, rather than simply having to demonstrate a preponderance of the evidence as the SEC does. Had the Justice case gone to trial, however, there's no guarantee that SAC could have capped its payouts at even $1.8 billion.
So we have the unsatisfying result of Mr. Cohen, who remains a multibillionaire, going on his way after agreeing to a hefty fee. And we have $1.8 billion flowing from the private economy to Washington, though prosecutors haven't proven that the government deserves a single dollar.