Insider Trading
The agency doesn’t allege that Cohen knew that the information was illegal, a prerequisite to any prosecution of Cohen for insider trading. Instead, the SEC said he failed to supervise the men after receiving information that should have caused a “reasonable” hedge fund manager to investigate the basis for the trades.
The nature of the agency’s action against Cohen, in effect a disciplinary action that occurs internally, caught many by surprise, since it comes after years of scrutiny by federal authorities, both civil and criminal.
“If they put Steve Cohen out of business, it’s not normally something you would see from a failure to supervise case,” said Hillary Sale, a law professor at Washington University in St. Louis. “You see failure to supervise cases in the broker-dealer world, but not with a fish this big.”
Days Before
The SEC proceeding against Cohen was brought July 19, just days before the agency faced a five-year statute-of-limitations deadline stemming from trades sparked by Martoma’s tips made in late July 2008.
The agency action now puts the regulator at the forefront of the U.S. investigation of Cohen and his hedge fund.
The government’s six-year insider-trading crackdown on fund managers, analysts and insiders at technology companies has resulted in charges against more than 80 people and convictions against 73 people.
Prior to last week’s filing, the government’s major actions against alleged inside traders and their associates have largely been tandem federal enforcement efforts -- pairing simultaneous charges by Bharara’s office with a lawsuit by the SEC.
Earlier this month, the Wall Street Journal, citing unidentified sources, claimed federal prosecutors had concluded they didn’t have enough evidence to charge Cohen by the end of this month for crimes related to Martoma’s tips.