Gupta Case

The current case with Cohen and SAC Capital may end up mirroring the cooperation that took place between the two agencies in the case involving Rajat Gupta, the former Goldman Sachs Group Inc. board member who was convicted this year for passing confidential information to Galleon Group founder Raj Rajaratnam.

The SEC moved first, filing an administration proceeding against Gupta. Gupta then sued the SEC, claiming that an administrative proceeding, which doesn’t allow the same amount of discovery as a lawsuit in U.S. court, would deprive him of multiple rights, including a jury trial. The SEC dropped the administrative case and waited for prosecutors to charge Gupta before filing its suit in federal court.

Triple Penalties

Donald Longueuil, a former junior portfolio manager at SAC Capital, was arrested in Feb. 8, 2011, for insider trading and was sued by the SEC on the same day. While he pleaded guilty a month later, it wasn’t until September of that year that Longueuil settled the SEC’s civil suit.

If the U.S. attorney doesn’t make a criminal case against Cohen, the SEC can continue with a civil action.

In insider-trading cases, the SEC can seek disgorgement of illegal profits, as well as three times that amount in penalties. It alleges that SAC Capital reaped $276 million in profit and losses averted as a result of trading on material, nonpublic information. The agency can also file administrative actions to bar offenders from the securities industry.

James Cox, a professor at Duke University School of Law in Durham, North Carolina, said Congress in 1988 expanded a provision regarding oversight, called control-person liability, to insider trading. It exposes managers who fail to maintain a system to discourage and detect insider trading to action by the SEC. The provision wouldn’t require the SEC to prove Cohen knew about the trades, just that the compliance system broke down, Cox said.

CR Intrinsic

CR Intrinsic employed Martoma from 2006 to 2010, was named last week as a defendant in a civil complaint by the SEC, along with Martoma and Gilman.