It should be pretty darn hot in hedge fund Steve "King" Cohen's $60 million East Hampton beachfront estate for the rest of the summer as he huddles with his lawyers to plot his defense to the SEC's allegations that he failed to supervise employees at SAC Capital Advisors who engaged in rampant insider trading.
Indeed, the SEC should be commended for going after the biggest fish on Wall Street, who has so far escaped criminal charges or personal penalties. If the SEC suit is successful, King Cohen could face a permanent bar from the financial services industry.
As Preet Bharara, US Attorney for Manhattan, said at a CNBC investment conference last week: "I don't see anyone that's too big to indict. No one is too big to jail."
The SEC complaint cites incriminating "instant messages" to and from Cohen and originating from employees of his firm, SAC Capital Advisors. And the "supervision" case he is charged with should be an easy one for the SEC to prove.
The SEC filing "depicts Mr. Cohen and his employees operating free of any interference by SAC's compliance department," according to New York Times' reporter Peter Lattman. "The case, which focuses entirely on trading in 2008, the only year SAC lost money, highlights a number of dubious communications between Mr. Cohen and his staff."
The Times report continues: "In one instance, Mr. Cohen received an email in which an SAC analyst explicitly said that he had received financial information from a person inside computer maker Dell for three consecutive quarters and then provided detailed numbers about the company in advance of its coming earnings announcement. After receiving the email, Mr. Cohen sold his entire 500,000-share position in DELL, the SEC said."
Remember, SAC and King Cohen are synonymous with hedge fund wealth and power on Wall Street. And as numerous insider trading cases over the past few years, starting with Raj Rajaratnam -- have shown that wealth and power has been built on illegal trading.
"Though the case is the first time the government has personally accused Mr. Cohen of wrongdoing, it adds to a raft of criminal and civil insider trading cases involving SAC over the last three years," Lattman wrote. "Four former SAC employees have pleaded guilty; five others have been tied to illicit activities." And earlier this year, SAC paid a $616 million penalty to settle SEC suits stemming from insider trading charges.
The message from the SEC and the DOJ is clear: no one is above the law.
Disclaimer: Zamansky & Associates is a New York law firm, which represents investors in court and arbitration cases against securities brokerage firms and issuers. The firm may represent investors in cases against companies mentioned in this blog.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.