Friday, August 23

Opinion: Another cheater wins on Wall Street

Opinion: Another cheater wins on Wall Street
| By David Weidner, MarketWatch

No matter how damning the evidence against Steven A. Cohen, the mogul accused of running a corrupt hedge fund continues to laugh all the way to the bank.

Last weekend while millions of us hard-working, play-by-the-rules Americans sought to rest and recover from a long week of work, the billionaire mogul accused of running a corrupt hedge fund had other plans.

He threw a lavish party at his 10-bedroom, 9,000-square-foot home on his estate in tony East Hampton, N.Y.

Somewhere in jail, Bernie Madoff smiled.

And why wouldn't he? After all, Steven A. Cohen appears as if he is going to be the one that got away with it. No matter how great the damning the evidence, no matter how pervasive the fraud at his firm, SAC Capital Advisors, Cohen continues to laugh all the way to the bank -- or the beach.

Make no mistake, the charges and evidence against Cohen's firm are thorough and damning. In emails and other communication, SAC executives, including Cohen, repeatedly said they sought an "edge," and in multiple decisions and trades, it appears clear that "edge" was inside information.

For example, when a merger was imminent between two drug makers, a trader contacted Cohen via a messaging system. Cohen, who regularly pressed traders on the reasons behind their bets, wrote that he expected the trader had a "line" into one of the companies. The trader responded yes.

As the complaint made clear, this is simply how business was done at SAC.

And it wasn't something that many on Wall Street are shocked to hear. To many financial veterans, Cohen's returns, like Madoff's, were just too good to be true. Moreover, for years there was more than just suspicion that SAC was cheating. The folks over at have scoured Cohen's record for years, using court testimony from his divorce and other sources to stitch together a pretty good case -- without investigative powers that authorities have.

Of course, that's just one side of the story. SAC Advisors denies that its alleged culture of insider trading existed and it has maintained that even if it did exist, the 57-year-old Cohen knew nothing about it. Cohen's attorneys say Cohen didn't read all of his email. Yet the case isn't built mostly on unread emails. It's built on communications in which Cohen responded.

Cohen's defenders would have us believe those 30% annual returns over the last couple of decades were the result of hard work and know-how.

But even to the casual observer, it's clear that a firm that bears the CEO and founder's name is most likely made in his image. And the failure of prosecutors to go after the firm rather than Cohen himself, is seen as a weakness in the case.

Cohen's lack of culpability is hardly unusual. Across Wall Street it's always the subordinates who pay the price. Fabrice "Fabulous Fab" Tourre is on trial for misleading investors in a Goldman Sachs Group Inc. (GS) mortgage investment. But as I've written before, Tourre was a bit player in a pervasive and critical scheme that permeated Wall Street.

As for the aforementioned Madoff, he did take the fall, but in his case he seemed to be protecting his loyal sons and subordinates.

The Cohen case is different in that the founder seems to have been enmeshed in the day-to-day strategy of the firm. And why wouldn't he be? Much of his $9 billion in personal wealth was tied up in SAC Capital investments. His fortune was riding on the work of the firm's 1,000 employees.

So, given his stake and evidence of his involvement it's more than disappointing that Cohen hasn't been named in the indictments. In fact, prosecutors seem to be going out of their way to keep SAC in business. Both sides reportedly are negotiating a deal to keep SAC up and running. The rationale being that SAC holds $51 billion in securities. An asset freeze could roil markets.

Frankly, that shouldn't sit too well with anyone. Prosecutors suddenly interested in protecting investors? Why weren't they thinking of that when they decided not to charge Cohen?

But in the effort to do something about SAC, the reality is prosecutors have actually got the wrong guy. As described in the complaint, SAC was a "magnet" for cheaters. And it's true: prosecutors got some of the cheaters. But when it came to the ultimate magnet, Cohen, the prosecutors were repelled.

And in that, the ultimate cheater wins.

As for Cohen, who can blame him for throwing a party? Especially one that may never end.

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