Hedge Fund Shows Government Punishes Success

Wednesday, 06 Nov 2013 07:16 AM

By Michael Carr

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Steve Cohen created great wealth by investing in the stock market. He did this through his hedge fund, SAC Capital. Starting with $20 million in 1992, Cohen was managing more than $14 billion about a year ago. Since then, the government has been pushing for sanctions against Cohen and most of his investors have withdrawn from the fund.

Securities and Exchange Commission (SEC) investigators have targeted Cohen and his fund for years. Several of the managers who worked for him have been found guilty of insider trading and at least one is awaiting trial. Cohen himself has been fully investigated, but never charged with a criminal offense.

It is not surprising several people in a 1,000-person firm would skirt the law. Cohen paid his managers very well and this probably provided motivation to cheat for unscrupulous individuals.

The same behavior is seen in baseball, where cheating with performance-enhancing drugs was rampant several years ago. No one punished their teams because of their offenses. The pursuit of Cohen seems almost unprecedented in society.

The government has unlimited resources at its disposal during the course of an investigation. If Cohen was guilty of insider trading, it is very likely evidence would have been uncovered.

He and his firm have accepted responsibility for failing to properly supervise the employees who were charged. It is hard to believe he could have stopped someone determined to break the law while they worked for SAC, but the law does have penalties for employers when employees commit crimes in almost every business.

Despite the fact that he has not been charged with wrongdoing after years of investigations, SAC Capital seems to be prepared to settle with the government for at least $1 billion. This is another sign of Washington's desire to punish Wall Street. Cohen will not be the last hedge fund manager to face the government's wrath, and if current trends continue, we will soon see Washington punish success in other fields.

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