The Fish Stinks From The Head Jul 28th 2013, 15:08
This famous ancient proverb explains the government's full-out assault on Steven Cohen and his allegedly corrupt hedge fund with his personal initials, SAC. The Justice Department has brought criminal charges against 8 existing or former employees of SAC, and 6 of them have already pleaded guilty or been convicted of using "inside information" to make huge trading profits. Though Cohen claims he is totally innocent of any criminal charges, the government believes the pattern of abuse suggests that SAC's exceptional returns are the result of a culture that fosters getting the edge by breaking the law. In other words, "the fish(in this case SAC) stinks from the head,"(in this case Steven Cohen.) That's why Justice is indicting SAC(the fish) as a way of punishing the Cohen(the head). The US Attorney in the Southern District of New York, Preet Bharara, who recently claimed "no one was too big to indict" charges that Cohen's SAC is a "magnet for cheaters."
Understand that in the recent past most "heads" of the "fish" have not been brought to the ultimate justice, a term in jail, besides Raj Rajaratnam, a prominent hedge fund operator and his source of "inside information, Rajat Gupta. Ordinarily, the accepted pattern of response is for the "head" to simply react by paying a fine that is a fraction of his net worth and never have to admit any guilt whatsoever. Think of Angelo Mozillo of Countrywide Credit who paid a fine of $67.5 million($45 million came from Bank of America) and never had to admit he misrepresented Countrywide's earnings to its investors. Or AIG's Hank Greenberg, who paid $15 million in 2009 without admitting any guilt about the SEC's charge that AIG's earnings were inflated through "numerous improper accounting transactions." Or take Richard Fuld, the disgraced former CEO of the defunct Lehman Brothers, who was just one of several former Lehman bigwigs who altogether paid a fine of $90 million to settle a lawsuit accusing them of misleading investors about Lehman's financial health. $90 million against the hundreds of millions that were lost by Lehman shareholders, bondholders and investors everywhere from the general financial system meltdown.
This time is different as the Justice Department brought criminal charges demanding a forfeiture of profits despite the recent payment of $616 million by SAC to settle a civil suit by the SEC. This pattern of doubling up criminal upon civil might be seen as a tactic to motivate SAC insiders to turn against Cohen, if the facts support such a scenario. The criminal prosecution underscores the government's drive to put a big fish in jail as evidence it is being tough on Wall Street.
I was reminded of the stakes involved when just recently the giant Swiss bank paid a fine of $855 million in connection with charges against it of selling faulty mortgage instruments prior to the devastating sub-prime scandal. This was in addition to the $1.5 billion fine it paid for manipulating the Libor interest rate, a bedrock of the financial markets as well as an earlier $780 million fine for helping 54,000 well-heeled Americans hide their assets from the tax authorities. That's a grand total of $3.2 billion to the U.S. government for committing a whole range of violations. I wish I'd known the true culture of UBS back in 2004 when I was impressed by the worldly savoir-faire of then chairman Marcel Ospel and then group chief executive Peter Wuffli, who were claiming they wanted "to be number one in global investment banking." Clearly, the culture at UBS was willing to break American law to try and get there.
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