One name was avoided this morning in the wood-paneled Manhattan federal courthouse where a dozen lawyers and a judge discussed the deal under which SAC Capital Advisors would plead guilty to securities fraud and pay a $1.2 billion penalty. Judge Laura Taylor Swain, flawlessly polite and ever-smiling, briefly talked about SAC’s "greed" and called the hedge fund's crimes "striking in their magnitude," but mostly the language in the quiet room was discreet, almost respectful. The judge didn’t point fingers at any one person — in particular not at Steven A. Cohen, founder and CEO of SAC, whom she delicately referred to as the "owner of the defendant entities."
For some, the euphemism suggested a problem. U.S. Attorney Preet Bharara, the latest sheriff of Wall Street, has prosecuted 80 insider traders and landed 80 convictions. It is a dazzling record, and one Bharara often cites as evidence of his office’s success in rooting out market cheaters. But Bharara has sometimes been criticized for choosing quantity over quality. In some of his cases, as one former prosecutor put it, "the powerful ones are given passes." In the SAC case, Bharara convicted eight of Cohen’s former employees, at least two of whom worked closely with the boss. How did Cohen avoid being accused of a crime? Or, as one observer asked, "Why did Preet wuss out?"
That the FBI wanted to arrest Cohen in the worst way is clear — according to one federal source, he was "the center of the solar system." The case that posed the greatest danger to Cohen was that of Matthew Martoma, a former SAC portfolio manager who in 2008 received illegal insider information that crucial drug-test results would disappoint. Martoma called Cohen on a Sunday. On Monday, Cohen began dumping $700 million of stock. "If you read the U.S. Attorney’s complaint against Martoma," said Bradley Simon, a former assistant U.S. Attorney and now a defense lawyer, "there is very clear language that the two [Martoma and Cohen] operated in concert. Martoma is charged with conspiracy to commit securities fraud, with Cohen, presumably. Why is it that one member of the conspiracy gets charged and the other doesn’t? Why are Cohen’s underlings in prison and he’s not?"
The U.S. Attorney’s office explains that prosecutors carefully consider all the evidence and only bring cases that meet rigorous standards of proof. In other cases against former SAC employees — six of whom were flipped by the government — investigators had been able to obtain witnesses or wire taps. Martoma, however, refused to turn against his boss, and without his help, it would have been difficult to prove that Cohen knew he was receiving illegal insider information. "If he’d flipped, the outcome would have been different," said one federal source. (An SAC spokesman previously said that Cohen was never charged with a crime because he was not guilty of anything illegal.)
Bharara succeeded in clipping Cohen's wings — Judge Swain approved the plea deal. Now the only money he's managing is his own, and that under the watchful eye of a monitor who will ensure that nothing illegal can be done at his new firm, Point72. But Simon believes that Bharara could have pushed further: "Is Cohen’s defense that people keep lying to me?"