Federal Judge Questions SEC Checkbook Justice in Assessing Huge Fines But Allowing Financial Firms to Deny Wrongdoing

Mark Karlin
Editor, BuzzFlash at Truthout

This is America, right, and only weasly socialists would question checkbook justice.  After all, if you make a few billion, you’re entitled to be above the law. Right?

And the people who allow you to be above the law are entitled to make their own fortune, as we noted yesterday in “Lanny Breuer Cashes in After Not Prosecuting Wall Street Execs, Will Receive Approximate Salary of 4 Million Dollars.” That piece and this commentary are part of an ongoing BuzzFlash at Truthout series on how the US government gives the super rich of the financial world a get out of jail free card.

So here’s the latest wrinkle. A federal judge in New York, on Thursday, had the common sense to burst the bubble of the incestuous DC/NYC axis.  In this case, it involved a hedge fund, a famous or infamous one depending upon your perspective.

The issue that perplexed the judge was how could the Securities and Exchange Commission (SEC) reach a settlement fining a hedge fund $600 million for violating insider trading regulations, but allowing the firm to legally affirm it was not involved in wrongdoing?

Fair question, no?

Here is what the New York Times (NYT) writes of the unexpected legal development in what was thought to be a routine judicial approval of an SEC settlement:

A federal judge raised questions on Thursday about a settlement of more than $600 million between the hedge fund SAC Capital Advisors and securities regulators to resolve insider-trading accusations, expressing specific concerns over a provision that allows SAC to avoid admitting that it did anything wrong.

In a hearing at Federal District Court in Manhattan, Judge Victor Marrero considered whether to approve the settlement between the Securities and Exchange Commission and the hedge fund, which is owned by the billionaire trader Steven A. Cohen.

“There is something counterintuitive and incongruous about settling for $600 million if it truly did nothing wrong,” Judge Marrero said, referring to SAC.

Imagine that.  A federal judge who smells a rotting fish and says from the bench: “What is the foul odor in this courtroom?”

The NYT continues:

Thursday’s hearing centered on the “neither admit nor deny wrongdoing” language in the SAC settlement. In recent months, federal judges across the country have expressed concerns that government agencies are letting defendants off easy by not forcing them to acknowledge wrongdoing. Most prominently, Judge Jed S. Rakoff rejected the settlement of a fraud case brought against Citigroup by the S.E.C. that let the bank avoid an acknowledgment that it did anything wrong.

BuzzFlash will repeat and italicize one sentence from the NYT article for its eminent “doesn’t past the smell test” reasonableness: “In recent months, federal judges across the country have expressed concerns that government agencies are letting defendants off easy by not forcing them to acknowledge wrongdoing.”

Ah, and if it is criminal wrongdoing, the SEC then would make a referral to the Department of Justice (DOJ).  But in the absence of admitting wrongdoing by the fined financial firm, the SEC cannot refer the case to the DOJ. Are you beginning to see how this scheme works for some key regulators who use government as a revolving door to attain their own fortunes with firms that they supposedly regulate – being hired by the firms before and after they work for the regulatory agency?

Meanwhile, there are rumors in the press that Steven A. Cohen, who heads and owns SAC Capital Advisors, may be under federal investigation, whatever that might mean.

But in the NYT Deal Book Hedge Fund section, it is revealed that Cohen is spending money with lavish abandonment amidst the SEC settlement proceedings and alleged government inquiries.

In an article entitled, “Hedge Fund Titan Buys Hamptons Property for $60 Million,” the NYT details Cohen’s most recent Artistole Onassis style spending spree:

Mr. Cohen reached a deal last week to pay $60 million for an oceanfront property on Further Lane in East Hampton, on Long Island, according to a person with direct knowledge of the sale. The home, which was listed for sale late last week, is down the road from one he already owns. At the same time, he has put on the market his duplex apartment in the Bloomberg Tower on the East Side of Manhattan, this person said. His asking price: $115 million.

News of Mr. Cohen’s real estate activity surfaced a day after reports that he purchased Picasso’s “Le Rêve” for $155 million from the casino owner Stephen A. Wynn. The acquisition is one of the priciest private art deals ever completed. He has quietly offered other works from his vast collection up for sale, according to several dealers.

Of the proposed settlement in which the SEC allows Cohen’s SAC hedge fund to not acknowledge any wrongdoing, the NYT provides some contextual background:

SAC is at the center of the government’s broad investigation into insider trading at hedge funds. Earlier this month, Mr. Cohen, 56, signed off on two settlements in which the fund agreed to pay federal securities regulators $616 million to resolve accusations of illegal conduct at SAC….

The $616 million would put only a modest dent in Mr. Cohen’s net worth, which is said to be nearly $10 billion, according to the Bloomberg Billionaires Index. He is one of a handful of hedge fund managers who have redefined wealth on Wall Street. Investors like John Paulson of Paulson & Company, which made a fortune betting against the mortgage market, and Carl C. Icahn, the activist investor currently bidding for Dell, have recently earned billions of dollars in a single year.

It must be a rewarding business, after all with the SEC asking for a fine that amounts to a parking ticket for insider trading to which you admit no guilt.

In regards to Cohen’s $60 million new Hampton home, the NYT reports that he owns another Hampton home, just a short walk away from the new one, in addition to the $115 Bloomberg Tower residence (which he appears to be putting up for sale).

Maybe Cohen just gets restless as to where to sleep in the NYC area, so he needs a few modern day Versailles’s to choose from each night as to where he is going to bunk.

But everyone needs a place they can call home, and for Cohen, the NYT says, “Mr. Cohen’s primary dwelling is a home in Greenwich, Conn., which has a basketball court and a two-hole golf course, and he owns other real estate in New York. Last year, he purchased a property in the West Village on Washington Street for $38.8 million.”

Cohen probably is proceeding on his exuberant opulent shopping spree without much fear of repercussion for how he allegedly earned his billions of dollars.

Because as BuzzFlash has documented, both Eric Holder and his former criminal division head at the DOJ, Lanny Breuer, have stated that it is department policy not to prosecute banks too big to fail, and add to that multi-billionaire hedge fund managers who own a lot of power in DC.


Mark Karlin is the editor of BuzzFlash at Truthout.  He served as editor and publisher of BuzzFlash for ten years before joining Truthout in 2010.  BuzzFlash has won four Project Censored Awards. Karlin writes a commentary five days a week for BuzzFlash, as well as articles for Truthout. He also interviews authors and filmmakers whose works are featured in Truthout’s Progressive Picks of the Week.


Copyright, Truthout.org. Reprinted with permission

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