Circle of Friends (44 page)

SAC would not comment on the meaning of the announcement, released on a Friday afternoon in late May. But legal experts say it's another indication of the ever increasing government scrutiny and that Cohen's lawyers are taking steps to protect their man.

The high-stakes chess game doesn't end there. Bharara may have bristled at being compared with Rudy Giuliani when it comes to publicity seeking, but he isn't above using Giuliani's law enforcement tactics. In the late 1980s, Giuliani indicted the former junk bond king Michael Milken for securities fraud under the Racketeering Influence and Corrupt Organizations law, also known as RICO.

One drawback to RICO is that prosecutors need to prove an ongoing multiyear conspiracy, and they need a sign-off from the Justice Department in Washington, presumably directly from Holder, to launch such a case. But the law is also among the most powerful weapons the government has in prosecuting criminal enterprises such as the Mafia and occasionally those that occur in the financial business, which is why in the spring of 2012, Bharara's office began weighing a RICO case against SAC and possibly against Cohen.

The major benefit to RICO is that there are ways around the five-year statute of limitations that prosecutors face in the Martoma-related charges. Another advantage is the enormous pressure RICO exerts on targets to settle. The penalties are so onerous (large fines, and as much as twenty years in jail per offense) that suspects end up cutting a deal with prosecutors rather than taking a chance in court. In Milken's deal, he served twenty-two months in jail, agreed to pay the federal government more than $1 billion, and was barred from the securities industry for life.

The government may be angling for a similar outcome for Cohen, legal experts say. Columbia University Law School professor John Coffee, one of the foremost experts on white-collar crimes, believes the government and Cohen's lawyers have begun bargaining on a deal already, with the deferred prosecution agreement and the gesture to close SAC being just the opening salvo in the negotiations.

Bharara's hunt for more insider-trading targets, meanwhile, comes as he's also thinking of leaving the office and has discussed ballpark figures with people about what his salary might be in the private sector. Wadhwa has also signaled that he might move to a private sector job, yet another indication that catching alleged bad guys often leads to a lucrative career defending them in the future.

If Wadhwa leaves, there will be more than a few people looking to take his place to work on remaining cases, including the biggest prize of them all—the ongoing scrutiny of SAC and Steve Cohen. And if the government does finally get their man (Cohen, through a spokesman, continues to maintain his innocence), they won't have to worry about the global economic ramifications as they would if, say, Citigroup, with its massive worldwide balance sheet, came under similar scrutiny.

The problem for people like Steve Cohen is simple: even if he did nothing wrong, there is no such thing as a too-big-to-fail rule in the hedge fund business. An indictment of Cohen would likely lead to the liquidation of SAC. If SAC were forced out of business, it might mean lower profits for the firm's trading partners on Wall Street, and many unhappy investors. But in the eyes of the federal government, the nation would survive, just like it did back in the early 1990s when Milken was sent to jail and Drexel Burnham Lambert, the firm he'd built into a powerhouse, was shuttered.

All of this is probably why the federal government's obsession with the white whale of Stamford continues. We don't know if Moby-Dick will swim away, harpoons jutting from his skin but otherwise unharmed, or if the government will finally bring him to shore. One possible bad omen for Cohen: In early April, Martoma abruptly changed lawyers, firing Stillman and hiring a corporate law firm out of Boston, a sign he may now be willing to cooperate.

We do know this: For all the whales the government has successfully hunted, the “friends” and “expert networks” successfully prosecuted, the real whales—the ones who threaten our entire economy—continue to swim the globe unscathed, secure in the knowledge that if they run into troubles once again, they will be rescued as before by ordinary Americans. And no one who studies the markets and financial systems has any doubt that, given this security, they will repeat the same practices that led to the 2008 collapse. The bill for the bailouts will be paid for by our children and grandchildren.

But we can all sleep soundly at night knowing that our government's investigators are hard at work making sure the Raj Rajaratnams and Steve Cohens of the world remain firmly fixed in their sights.

CAST OF CHARACTERS

Rodolphe Agassiz—
Chief executive of Cliff Mining, who purchased a big stake in his company on the Boston Stock Exchange on a report that the company was sitting on a sizable lode of copper in 1926. He was sued by Homer Goodwin, who sold his shares without insider knowledge of the report. Goodwin lost, setting a weak precedent for future insider trading cases.

Gary Aguirre
—A former SEC enforcement attorney who said insider trading was rampant in the hedge fund business and that the SEC was bowing to political pressure in failing to crack down on the practice.

Robert “Rob” Babcock
—Player in a scheme in which information on UBS ratings moves would be given to portfolio managers at Bear Stearns, and others, before they got to clients.

Peter Bacanovic
—
Martha Stewart'
s stockbroker, who tipped her off that several ImClone executives were selling shares in the company ahead of an unfavorable ruling from the Food and Drug Administration on a cancer drug called Erbitux.

Preet Bharara
—U.S. attorney for the Southern District of New York who is widely seen as one of the toughest enforcers of white-collar crime. Bharara prosecuted
Raj Rajaratnam
in one of the biggest insider trading busts of all time.

Biovail Corp.
—A company that sued
SAC Capital Advisors
for allegedly having a research company publish negative reports about it in a bid to push down its share prices and support SAC's short positions. The case was dismissed.

Henry Blodget
—An Internet research analyst at brokerage firm Merrill Lynch who allegedly wrote glowing reports about the companies he covered, in a bid to secure deals for the brokerage.

Reed Brodsky
—A U.S. attorney who was part of the team that successfully convicted
Raj Rajaratnam
.

William Cary
—Headed the SEC from 1961 to 1964, and sought to increase the commission's power in fighting insider trading.

David Chaves
—Coheaded the securities fraud and white-collar crime division at the FBI's New York office, and a key figure in Operation Perfect Hedge.

Anthony Chiasson
—Former
SAC Capital Advisors
employee who founded Level Global Advisors. Chiasson was convicted of insider trading regarding technology stocks.

Danielle “Dani” Chiesi
—An analyst at
New Castle Partners
, a Bear Stearns subsidiary, who exchanged insider information on a quid pro quo basis with numerous individuals and had close ties to
Raj Rajaratnam
.

Citadel Management
—A large asset management firm that was a client of analyst John Kinnucan.

Steve “Stevie” Cohen
—Founder of
SAC Capital Advisors,
a Stamford, Connecticut-based hedge fund that manages some $14 billion in assets. Though considered among the greatest traders in modern history, Cohen also has been in the crosshairs of the government's sweeping insider trading probe. He has not been charged with any wrongdoing.

James Comey
—Assistant U.S. attorney for the Southern District of New York who led the prosecution in the Martha Stewart case.

Tom Conheeney
—
SAC Capital Advisors
president and one of
Steve Cohen'
s top lieutenants at the hedge fund.

Arthur Cutillo
—Attorney at Ropes & Gray who took bribes to provide insider information on several corporate mergers, including Bain Capital's purchase of 3Com.

Raymond “Ray” Dirks
—An analyst who played a role in one of the key legal precedents involving insider trading.

John Dowd
—Attorney at Akin Gump who led the defense in the
Raj Rajaratnam
case.

Craig Drimal
—A Galleon Group trader convicted of conspiracy and securities fraud for trades made on companies including 3Com and Axcan Pharma.

William Duer
—Alexander Hamilton's assistant Treasury secretary, who used insider information to bet on bank stocks in the late eighteenth century, and sparked a financial crash.

Fairfax Financial
—An insurance company that sued
SAC Capital Advisors
over allegedly manipulating stock prices. Fairfax's case was dismissed.

Doug Faneuil
—A low-level brokerage employee who delivered the message to
Martha Stewart
that ImClone executives were selling shares in the company ahead of an unfavorable ruling from the Food and Drug Administration on a cancer drug called Erbitux.

Erik Franklin
—A portfolio manager for Bear Stearns'
Lyford Cay
fund who traded on knowledge of UBS ratings moves before clients could get to them.

Noah Freeman
—An ex-SAC fund manager who cooperated with the government in its insider trading probe.

Cameron “Cam” Funkhouser
—Securities regulator who perfected a computerized system for watching for suspected insider trading.

Galleon Group
—The now-defunct hedge fund founded by
Raj Rajaratnam
.

Kathryn Gannon aka Marylin Star
—A pornography star who received insider tips on mergers through a relationship with Keefe Bruyette & Woods chief James McDermott.

Michael Garcia
—Manhattan U.S. attorney during the Bush administration who famously proclaimed “greed is at work” when he unveiled a financial crisis era insider trading probe.

Gerson Lehrman Group
—An expert network firm involved in the insider trading case against SAC and former portfolio manager Mathew Martoma. The firm has not been charged.

Dr. Sidney Gilman
—Physician who allegedly leaked information to
SAC Capital Advisors
fund manager Mathew Martoma.

Robert Gintel
—Partner at brokerage Cady, Roberts & Co. involved in one of the early insider trading cases.

Rajiv Goel
—A former Intel executive who leaked insider information about the chipmaker to
Raj Rajaratnam
, and later cooperated with the government in its prosecution of him.

Zvi Goffer aka “Octopussy”
—A trader at
Galleon Group
and other hedge funds known for his extensive insider trading network.

Lauren Goldberg
—Assistant U.S. attorney who worked on the
Raj Rajaratnam
case.

Jack Grubman
—A technology analyst at Citigroup's Salomon Smith Barney unit who allegedly penned rosy research reports on companies in exchange for investment banking business.

Rajat Gupta
—Former Goldman Sachs director and McKinsey & Co. chief executive who was convicted for providing
Raj Rajaratnam
with inside trading tips.

Mitchel Guttenberg
—An employee on UBS's research team who illegally passed inside information involving stock research to various hedge fund traders.

Jonathan Hollander
—Former
SAC Capital Advisors
money manager who provided government investigators with information about how the giant hedge fund operates.

Judge Richard Holwell
—U.S. district judge who presided over the
Raj Rajaratnam
trial.

Richard Jacobs
—Agent in charge of FBI team “C-1,” which was tasked with taking down
Raj Rajaratnam.

Winifred Jiau
—Former
Primary Global
consultant convicted of providing inside information to her hedge fund clients.

B. J. Kang
—The FBI special agent who led the Galleon probe.

Debasis Kanjilal
—Former Merrill Lynch brokerage client who sued the firm's former analyst
Henry Blodget
over allegedly faulty stock research.

Carl Karcher
—Founder of Carl Karcher Enterprises, the parent of the Carl's Jr. burger chain, who settled an SEC civil complaint involving insider trading.

Roomy Khan
—A former executive at chipmaker Intel and one of the key cooperating witnesses in the investigation of
Raj Rajaratnam.

Robert “Bob” Khuzami
—The SEC enforcement chief during the agency's insider trading crackdown.

John Kinnucan
—An independent research analyst who headed Broadband Research, LLC; Kinnucan was convicted of securities fraud but may be best known for his email to clients alerting them of the government's insider trading probe.

Anil Kumar
—A McKinsey & Co. executive vice president who was convicted of leaking inside information to
Raj Rajaratnam.

Mark Kurland
—Cofounder of
NewCastle Partners
who was convicted of passing insider information during the Galleon probe to
Danielle Chiesi.

Benjamin Lawsky
—An assistant U.S. attorney and close associate of Manhattan U.S. attorney,
Preet Bharara.