Oops: NYC employees of Arthur Andersen in 2002, protesting the firm’s indictment — which shut it down, though the conviction was later overturned. (New York Post)
You may remember how Arthur Andersen was forced out of the accounting business because it was convicted of fraud — but few recall that the Supreme Court later overturned that conviction.
That’s worth keeping in mind amid the swirl of suspicion over another major firm in the feds’ crosshairs, the massive hedge fund SAC Capital.
After years of investigations, neither SAC nor its founder, stock-trading impresario Steve Cohen, has been charged with any crime. Yet as of yesterday, it looks like SAC may be in its final days, as investors yank money out of fear that SAC or Cohen himself could face criminal insider-trading charges.
In other words, it’s suspicion that could kill SAC.
That should anger anyone who’s even remotely concerned about civil liberties and one of the foundations of American law — the presumption of innocence.
I say this as someone who has aggressively covered the feds’ insider-trading crackdown and their increasing focus on Cohen and major players at his hedge fund in recent years.
The hedge fund certainly looks like a place where people skirt the law; the Justice Department recently indicted a former SAC portfolio manager, and one still at the firm, on criminal insider-trading charges.
And officials have made little secret that they’re willing to trade leniency against these latest targets, Mathew Martoma and Michael Steinberg, if they provide evidence that implicates Cohen in their allegedly fraudulent dealing. Even facing years in prison, both have refused and maintain their innocence.
As I point out in my upcoming book on insider trading, “Circle of Friends,” the feds’ interest in SAC dates back to at least 2007, when they began investigating a series of suspicious trades coming from the firm around key market-moving events.
The firm credited its top-notch research, known on Wall Street as the “SAC Edge,” for the good timing. But the feds increasingly believed the firm was ferretting out material, nonpublic information about stocks — a k a insider trading.
With that, government officials began to squeeze witnesses for all they knew about the fund and Cohen. The Manhattan US Attorney’s Office and the FBI got a court order to tap Cohen’s home phone; investigators tried to plant a mole inside the firm.
Yet the feds’ massive white-collar-crime apparatus has so far failed to make a viable criminal (or even civil) case against Cohen.
Earlier this year, SAC paid more than $600 million to settle civil charges with the Securities and Exchange Commission, a move designed to end the legal morass as jittery investors threatened to pull their holdings from the fund.
Well, not quite. Recently, SAC announced that it would no longer “unconditionally” cooperate with the federal probe. The reason: Cohen and several SAC execs had been hit with grand jury subpoenas.
The subpoenas came at a crucial point, just as investors faced Monday’s deadline for one of their periodic chances to withdraw money from the fund.
If the feds meant to cripple SAC, it worked. As I write, outside investors have signaled plans to pull most or all their money out of the $15 billion hedge fund.
That would leave SAC with around $9 billion to invest, most of it Cohen’s own fortune. But without the outside money, SAC will likely exit the hedge-fund biz, since it won’t be able to collect the hefty investment fees needed to pay for its costly research and compliance staff. Cohen will be relegated to running what’s known as a “family office.”
Yes, some officials think Cohen is guilty; investigators believe there’s evidence that he might have known of insider trading at his firmand possibly participated in it.
But it’s pretty common knowledge in the legal world that folks rarely get subpoenaed for a grand jury if they’re about to get indicted. Plus, for all the smoke surrounding SAC, the government investigators I speak to concede they’re having a difficult time coming up with a case against Cohen.
Again, for all I know, the feds are about to turn a major witness who’ll directly implicate Cohen on some dirty trades. Yet time is running out: The statute of limitations on the two most active investigations ends in July and August.
And if Uncle Sam doesn’t make the case, remember the Arthur Andersen example — because an innocent man just lost his business.
Charles Gasparino is a Fox Business Network senior correspondent.