Well, it’s over. The massive investigation into the inner workings of SAC Capital and its art-collecting founder, Steve Cohen, has ended with a settlement with federal prosecutors that, according to the Times, will include a guilty plea to insider-trading charges, a $1.2 billion penalty, and the requirement that SAC stop managing money for outside investors.
The terms of the settlement are roughly what we expected: SAC will admit criminal guilt for all that insider trading, but it will still face civil charges, and individual employees won’t be immune from further prosecution. And the effect of the deal is that Cohen, who epitomized the modern hedge-fund manager, is no longer a hedge-fund manager at all. He’s still going to be fabulously wealthy, of course. But he’ll fade from visibility as he’s forced to give back all his outside money and become the manager of a family office.
Preet Bharara, the U.S. attorney who has made the investigation of SAC Capital and Cohen his pet project, will no doubt use today’s settlement to advance the narrative that the SDNY/DOJ/SEC are getting tougher on financial crime. But what the settlement really proves is that if you devote a staggering amount of time and prosecutorial muscle to a gigantic, decade-spanning investigation of a single company, you can ultimately exhaust that company’s resources and/or patience and get it to agree to almost any settlement that keeps its principals out of jail and some of its money in the bank.
Which is not to say that the guilty plea is unwarranted! Just that, my God, did it drag on. Here is a Seeking Alpha post from December 2009 about the “rumored” crackdown on insider trading at SAC Capital. And according to the Times, the “the inquiry [into SAC] began in earnest during the middle of the last decade using techniques normally reserved for organized crime and drug trafficking cases.” By my math, the investigation into SAC Capital is older than Twitter, Coke Zero, and the iPhone. To put it another way, when federal investigators first fixed their eyes on SAC, Miley Cyrus looked like this:
So when the Times says that Cohen “thinks it is unfair that he is paying nearly $2 billion in penalties out of his pocket for the crimes of what he believes are rogue employees,” that’s probably true. He’s probably also wishing he could go back in time to 2007, cut a $2 billion check, close down his fund, and save himself and his employees a few years of acrimony.
Update: An SAC Capital spokesman comments: “We take responsibility for the handful of men who pleaded guilty and whose conduct gave rise to SAC’s liability. The tiny fraction of wrongdoers does not represent the 3,000 honest men and women who have worked at the firm during the past 21 years. SAC has never encouraged, promoted or tolerated insider trading.”