An irreverent Wall Street Blog
by Bill Singer
 
Join BrokeAndBroker blog on Facebook  Follow the BrokeAndBroker blog on Twitter  Connect with BrokeAndBroker on LinkedIn  Join Bill Singer on Google+  Subscribe to RSS Feed

FULL TEXT INDICTMENT USA v. SAC Capital
Written: July 25, 2013

Count I: Wire Fraud
Count II: Securities Fraud (SAC Capital LP)
Count III: Securities Fraud (SAC Capital LLC)
Count IV: Securities Fraud (CR Intrinsic Investors, LLC)
Count V: Securities Fraud (Sigma Capital Management, LLC)

The Indictment alleges ("Portfolio Managers" are "PMs". "Research Analysts" are "RAs":

7. At bottom, the encouragement by the SAC ENTITY DEFENDANTS of SAC PMs and SAC RAs to pursue aggressively an information "edge" overwhelmed limited SAC compliance systems. Furtherm the relentless pursuit of an information "edge" fostered a business culture within SAC in which there was no meaningful commitment to ensure that such "edge" came from legitimate research and not Inside Information. The predictable and foreseeable resultm as charged herein, was systematic insider trading by the SAC ENTITY DEFENDANTS resulting in hundreds of millions of dollars of illegal profits and avoided losses at the expense of members of the investing public.

. . .

16. In furtherance of the scheme, the SAC ENTITY DEFENDANTS sought to hire PMs and RAs believed by the SAC Owner and others in SAC management to have an "edge" based in part on networks of contacts with employees of public companies in the sector in which the SAC PM or SAC RA specialized. The focus on hiring employees with such networks was not balanced by any corresponding effort to ensure that prospective SAC PMs and SAC RAs did not use these contacts to obtain illegal Inside Information.

READ the FULL TEXT Civil Forfeiture Complaint USA v. S.A.C. Capital Advisers LLP et al. (SDNY, 13-CV-5182, July 25, 2013 


Bill Singer's Comment

Despite the publicity attendant to this somewhat surprising development, the inescapable fact remains that companies do not act other than through human beings. The manifest flaw in the US Attorney's case is that the office has charged everyone under the sun but for Steven Cohen, the owner of the defendant enterprise.  It is a glaring omission from the caption and one that may well prove fatal to the government's case -- only time will tell whether this case can be successfully prosecutor with an unnamed 800 lb gorilla not sitting in the courtroom.

At the end of the day, the Indictment of the various entities is a clever tactic but, ultimately, we are left with the somewhat absurd reality that the "SAC Owner" (as referenced in the Indictment and Civil Forfeiture Complaint) is still an unnamed individual and not a named defendant.  The old maxim is that a fish stinks from the head down but at SAC, apparently, prosecutors and regulators are unable to hook much more than a headless fish.

Finally, please consider this extract from my May 13, 2013, BrokeAndBroker column "Did Preet Bharara Blink In The Fight Against Insider Trading?

Moral Hazard

No – absolutely, unequivocally “NO,” I do not believe that insider trading is a good thing or even something that we should condone. That being said, there is a dangerous moral hazard in pretending to the public that regulators and/or prosecutors are controlling a pervasive fraud. Frankly, the public deserves far more honesty and candor. 

Insider trading is not diminishing or retreating. Despite years of prosecutions, convictions, and prison sentences, well-educated industry professionals persist in crossing over the line, fueled by the apparent belief that they are smarter than the last batch of convicted defendants or that they have found a new way to avoid detection. While we may debate many aspects of this dilemma, one thing is clear: No one is getting the message about the significant personal and professional costs of getting caught and prosecuted for insider trading.  Despite the headlines and the clanging cell-doors, the misconduct goes on and folks who should know better (and do know better) take the odds of getting away with the crime.

Ultimately, I would just as soon legalize insider trading and warn the public that the casino is rigged, that the games of chance are fixed, and that the croupiers and pit bosses are on the take. You want to put your chips on the table? Hey, go ahead but you’ve been warned.

Bharara's Fatigue?

To some extent, the press release announcing Chiasson’s sentencing ("Former Hedge Fund Co-Founder Anthony Chiasson Sentenced in Manhattan Federal Court to 78 Months in Prison for Insider Trading" May 13, 2013 ) seems to acknowledge my concerns.  Maybe I’m reading a tad too much into Preet Bharara’s victory lap, but he too seems to have grown somewhat fatigued, and his post-game analysis seems to be tinged with a bit more restraint than previous iterations:

Manhattan U.S. Attorney Preet Bharara said, “With his sentence today, Anthony Chiasson chose to be part of a corrupt circle of friends that cheated the market to gain an unfair trading advantage, and, for that, he lost his career, his reputation, and now he has lost his liberty. Such catastrophic losses should deter those who would be tempted to break the law, but for those who are undeterred, we are not going away.”

Bharara’s characterizations bear repeating. Some of Wall Street’s best and brightest voluntarily choose to go over to the darkside of corruption and cheating.  Many of these miscreants knew in advance that what was at risk were their careers, reputation, and liberty – but they just didn’t factor those negatives into the equation with enough weight.  Finally, and to his credit, I think Bharara sounds the perfect pitch when he stresses that those embarking upon insider trading “should” be deterred by the record of convictions and sentences; however, the U. S. Attorney then acknowledges that such a prospect has failed to deter many who were aware of the dire consequences of their conduct. 

Zombie Prosecutors

Bharara states the proposition in what I feel is the proper tone:  For those of you who are willing to throw the dice and take your chances, we are going to just keep plugging away with our investigations, prosecutions, and, hopefully, convictions.  It’s no longer about deterrent as much as it is about persistence. Bharara is tapping Wall Street on the shoulder and reminding its participants that effective or not, his office will continue to bang its head against the wall of insider trading.  All of which conjures up the image of a zombie army of prosecutors in pursuit of the fresh meat of Wall Street's insider traders.

Conclusion

Bharara is the best Sheriff of Wall Street that I have seen in some three decades on the Street.  And while, at times, he may come off as Don Quixote tilting at monsters who are actually windmills, I have a soft spot for the Man of La Mancha.  In the end, I still don’t agree with the criminalization of insider trading because I have found that the moral hazard of such a failed effort is to provide false assurance to the public that the markets are fairly regulated and the bad guys ultimately pay.  Notwithstanding, I compliment Bharara for his measured post-trial commentary.  

 
[^top^]

Previous Entries
November 24, 2014
This is Part 3 of a three part BrokeAndBroker Blog commentary. If you've started here, you need to go back and first read Part 1 and then Part 2, wher... Read On
November 24, 2014
This is Part 2 of a three part BrokeAndBroker Blog commentary. If you've started here, you need to go back and first read Part 1, where you will be ad... Read On
November 24, 2014
Get a cup of coffee. Find yourself a nice donut. Okay . . . now, sit down and make a modest investment of your time. This is a three-part BrokeAndBrok... Read On
November 22, 2014
Walking And Chewing Gum At the SECYeah, I know . . . I’m getting older and grouchier and if I were nominated for Curmudgeon of the Year, I would proba... Read On
November 21, 2014
Yeah, I know . . . I’m getting older and grouchier and if I were nominated for Curmudgeon of the Year, I would probably complain about that accolade a... Read On
November 21, 2014
Few battles on Wall Street become more pitched than those involving disputes over a registered person's commissions, fees, or bonuses.  Typically... Read On
November 20, 2014
First: Study. Second: Study more. Third: Take the test. Fourth: Pass the test.  Four simple steps you need to follow in order to p... Read On
November 19, 2014
We got this registered person who is acting as the CFO of his son's company and is also promoting an anti-wrinkle cream.  How do those two roles ... Read On
November 18, 2014
Stockbroker, Compliance, Legal, and Regulatory JobsEmployment Page BrokeAndBroker.com Jobs#wallstreetjobs @brokeandbrokerNOTICE TO EMPLOYERS... Read On
November 17, 2014
According to the homepage of The Financial Industry Regulatory Authority ("FINRA") Dispute Resolution:FINRA operates the largest dispute resolution... Read On
BrokeAndBroker.com Job Search
Related Topics
Tag Cloud
Internet FINRA Bear Stearns Bloomberg SEC NASD NYSE Money Laundering Due Diligence Waiver Forbes China Chepucavage Broy Woody Allen Madoff NAC NPR Marketplace Stanford UBS Ketchum Antitrust NASDAQ RRBDLAW Schapiro Bill Singer BrokerAndBroker USERRA Brokeandbroker.com Morgan Keegan Arbitration Counterclaim BrokeAndBroker.com Khuzami BrokeAndBroker Aleynikov Goldman Sachs brokeandbroker Promissory Note U4 Bill SInger EFL CFTC Huffington Post Flash Crash arbitration RBC RRBDLAW.com Ponzi Affinity Fraud Wachovia Raymond James BrokeandBroker.com Expungement Fraud Securities Fraud Outside Business Activity Registered Rep Magazine FOREX BrokerAndBroker.com FBI Banc of America Pro Se Supreme Court Morgan Stanley Smith Barney E*Trade Margin email Galleon Penson U5 Defamation Protocol Wells Fargo Punitive Damages Citigroup Merrill Lynch ARS Employee Forgivable Loan Street Legal Morgan Stanley AWC Fidelity Bankruptcy Broke And Broker HFT David Sobel Day Trading Ameriprise Commissions Spouse Schwab Commission CRD Kenneth Starr IRS CNBC Complaint ATM Skimming Hacking Phishing Malware Naskovets Poteroba Koval Lincoln Financial Selling Away Outside Business Activities Rakoff 2nd Circuit Second Circuit IRA 401k Forgery Tax RRBDlaw.com Email Netschi Moore Whistleblower Street Sweeper Tran Bharara Facebook Online Severance Bonus Eligibility Rule TD Ameritrade Hedge Fund SAC 1099 Smith Barney Lehman Brothers SIPC IC3 Scottrade Lehman JPMorgan Chase Hertz Insider Trading Bank of America Department of Justice Elles Bribe Auction Rate Securities Raiding Spam Edward Jones Medicare Diabetes Dow Schumer Thain Walter Bid Rigging Real Estate Discrimination Wall Street Statutory Disqualification Form U4 Form U5 Indictment Boyland DOJ Corruption bill singer FTC Do Not Call FINRA Arbitration Costa Rica Settlement LIBOR Varney Plea Rule 8210 Eligibility RRBDlaw Appeal Fowler LPL Johnson US Airways Reg D MSSB Vault Loan SunTrust Discovery Employment Rosenthal Recruiting Lawyer Trading Platform JP Morgan Employment Tuesday Wrongful Termination Bank Guarantee WaMu Solicitation REIT Martin Credit Cards Rule 3050 Away Account Credit Repair PN Advisor Placement Group Forex Mortgage Private Placement Moon Merrill Anderson Exam Lee Borrowing Tax Lien Conversion Oppenheimer Wedbush Felony Misdemeanor Expenses ING Lien OTR Estate Jobs Florida Credit Card Elderly Flash Drive Annuity Expense Reimbursement FNMA BrokeAndBroke TIC DWI Promissory Notes Suitability Will POA Power of Attorney Casino NSF MF Global Counterfeit Preet Bharara Corzine Hacker RIA Prison Disclosure NASAA Aguilar FCPA Subway Identity Theft Gold Dell Bar Injunction Bank Deutsche Bank Hospital God HSBC Private Placements Eric Stein Wire Fraud CCO Audit Joshua Brown Backstage Wall Street Obstruction of Justice Reuters Retaliation Variable Annuity Arbitraiton Outside Account Options Telephone Wine Social Media ADA Pacifico Non-Prosecution Agreement Confirm Tax Fraud Retirement OBA Equity Indexed Annuities EIA MetLife Continuing Education Cheating OIP Tax Liens Willful CE Unregistered Impersonation Annuities BBVA Business Expenses ETF JOBS Act Mail Fraud Parking Variable Annuities Signatures BitTorrent Impersonator Wire Transfer Wire Crowdfunding Nasdaq Away Accounts WSP Laptop Dodd Frank Checks RMBS AML PST Solicited Unsolicited Congress SRO Wife Discretion Non-Solicitation Restaurant Commodities Private Securities Transaction Offer of Settlement Money Market employment jobs Great Recession Chase Investment Services Arrest Barclays Liens Failure To Supervise Apple Time And Price T&P Willfully Husband Letter of Authorization LOA Sexism Debit Card Knight Test Practice Sale Unfair Competition Signature Judgments Undisclosed Settlement Trainee Fee Trust Laser Side Bar Mattera Female Sales Assistant Kennedy Charge Sexist NML Argentina Embezzlement Silver Investor Alert Judgment Bank Fraud Deceased TSSB Mary Jo White Trustee Motion To Dismiss Frumento Conspiracy 6th Circuit Proctor Rule 3040 Class Action Beneficiary NYAG Schneiderman Gallagher White Self Regulation Short Sale Compromise Website TRO Supervision Vacatur SDNY BrokeAndBroker Bill Singer Piwowar Stifel Rule 1122 Article V signature Confidential Inside Information VA Regulation SP Customer Rule 3270 Rule 3240 Annual Compliance Questionnaire OWB 2Cir Stockbrokers Altered Records
 
Email Bill Singer Connect with Bill Singer on Facebook Follow Bill Singer on Twitter Link up with Bill Singer on LinkedIn Join Bill Singer on Google+