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Steven Cohen Likely To Settle Insider Trading Criminal Case Total Cost $1.8 Billion

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 Stephen Cohen / Getty

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According to the Wall Street Journal, earlier reports of an impending settlement between Steven Cohen’s SAC Capital Advisors (SAC) and the US Justice Department are likely coming true.SAC is reported to have agreed to plead guilty to insider-trading charges and pay a huge fine associated with the crime as part of a deal to settle criminal charges for securities fraud laid against the company.The deal could be formally announced as early as the end of this week, when SAC representatives would have to turn up in court to enter guilty pleas to securities fraud charges committed by the company.

The deal envisaged may be for SAC to pay about $1.2 billion in fines and for the company to give up managing outside capital, although it will be permitted to remain in existence as a family office for Steven Cohen’s own money – perhaps as much as $7 billion even after the settlement.

This new fine to settle the criminal case is on top of the US$616 million SAC had earlier already agreed to pay to settle civil charges the Securities and Exchange Commission (SEC) chad brought against the company.

Whilst many details of the settlement are apparently still to be put to bed, with the possibility that it could still fall apart, nevertheless it is reported to be likely now to indeed proceed. The enormous new fine plus the admission of guilt are thought to be enough to send a powerful message to Wall Street about financial wrongdoing for the future.

A settlement of this case also comes against the accompanying back-drop of the enormous US$13 billion settlement mega-bank J.P. Morgan has recently agreed to pay to settle criminal charges of its own, over the mismanagement of mortgage products by some of the units it acquired in the fall-out from the 2008 financial crisis.

In that settlement too, J.P. Morgan has also agreed to admit to the charges brought against it, a key hot button for federal prosecutors.  In the past a number of Wall Street firms had escaped with little more than expensive slaps on the wrist in such cases,  culminating eventually in huge political fallout.

In a way Steven Cohen is lucky, as the “big fish” theory of punishment led ultimately to him becoming,  in relative terms at least, just small fry compared to J.P. Morgan, thus making it easier for the Justice Department  as well to settle the case without bringing it all the way to trial. While a trial could certainly have been a very public admonishment,  many commentators have thought that the case was not necessarily a slam dunk for the Feds to win. It seems smoking gun may have been quite thin on the ground in the evidence department – and certainly as related to Steven Cohen himself who in the end was not even charged personally at all only his companies.

Hence the J.P. Morgan deal has apparently now given everybody sufficient cover to settle the SAC case, and Steven Cohen must be quite relieved; or at least he will be once a firm deal is actually announced, to see it all finally put behind him.

There are it seems still a few more tedious details to clear up however. SAC is still in ongoing further discussions with the SEC, which has also brought a second civil case against founder Steven Cohen personally for failure to adequately supervise his own employees,  with the SEC apparently seeking to have him barred for life from managing outside capital.

Also the deal with federal prosecutors covers his company SAC but does not relate to Steven Cohen personally, whom they had not even criminally charged in the case. Accordingly the government can continue to investigate his own responsibility for the troubles SAC got into.  So far they presumably have not found any incriminating evidence against him personally though, or they likely would have used it.

In the criminal case if a deal is announced, representatives of the SAC companies will have to enter guilty pleas to securities fraud. They will also have to describe the firm’s crimes in open court. SAC will not, however, have to admit wrongdoing in the only case so far that prosecutors have been able to directly link Cohen to, that of Mathew Martoma, a former SAC portfolio manager set to stand trial next year. SAC will also not have to admit wrongdoing in the case of Michael Steinberg, an on-leave SAC trader whose trial begins next month.

Then it will be over and SAC will have to enter a period of orderly liquidation as an outside money manager.  Steven Cohen will still have plenty of money left, as well as his art collections. He will also have the time to organize any necessary legal strategies should prosecutors manage to come closer to his own personal activities than they have thus far.



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