As Statute of Limitations Runs out, Pressure Mounts on Steve Cohen and the SAC

Michael Teague |

Steven CohenThe five-year old drama that has been unfurling between the Securities and Exchange Commission and US Attorney Preet Bharara on the one hand, and SAC Capital Advisors and its legendary founder Steve Cohen took a turn for the dramatic over the past week.

Throughout 2013, the SAC story has become more or less of a major news item, at least in the investment and finance world, at a time that can otherwise be characterized as awash in excitement about the seemingly inexhaustible appetite of markets to climb higher and higher still.

In March, the SEC managed to extract a $615 million penalty out of SAC Capital to settle claims of insider trading.  For several years, the SEC has been picking away at the hedge fund, trying to peel off whoever it could with the help of whatever pressure it could bring to bear in the hopes of producing concrete evidence of wrongdoing.  So far, they have been pretty successful, uncovering and flipping nine former employees of SAC, and a string of others in the process.

Of course for Cohen, a $600 million + fine is likely to be more damaging for his reputation than his pocketbook, though his company got off without actually having to admit that it had done anything wrong.  After all, the firm pays what some estimate to be $400 million every year in brokerage commissions and Wall Street fees.  That said, given the time and effort investigators and federal agencies have devoted to catching SAC over the years, the case was not likely to go away as a result of the March settlement.

Indeed, last week, Cohen was targeted personally when he received a subpoena to make himself available to a federal grand jury.  Almost immediately after the subpoena was delivered, on May 17th, SAC wrote its clients to inform them that the hedge fund would no longer be cooperating unconditionally with the government investigators, and would also no longer be filling its clients in about what was going on with regard to potential litigation against it.

Much of this activity must be seen in the context of the statute of limitations on the original charges that expires this coming July.  Both the SEC and Manhattan Attorneys will have to file before then, both against the company and against Cohen personally.

On Monday, Cohen was reportedly mulling an offer to prosecutors that would see him close his $15 billion fund to outside investors, which would basically amount to the same thing as asking for a deferred prosecution agreement.  It remains to be seen whether the government thinks it even needs to make such a deal with Cohen, who would probably manage to take less responsibility as a result.

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