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Monday 16 June 2014

The Soft-Landing ‘Global Resolution’ for Steven Cohen’s Avatars

Recent Smokescreen Stories by Main Stream Media ‘MSM Muppets’ in the SAC Capital insider trading saga:

Bloomberg June 9th: Cohen’s Point72 Bans Instant Messaging for Some Managers
Bloomberg June 5th: SAC’s Martoma Sentence Delayed as Defense Seeks More Time 
Bloomberg June 5th: Story: SAC's Steven Cohen Is Still Defiant, Possibly Humbler
Bloomberg June 4th: Steve Cohen Misses His Chats With Corporate Insiders

FPM reveals the artifice in the current episode of the SAC-saga, as contrived by Steven A Cohen's defence attorneys at SAC Capital and peddled by his spokesman Jonathan Gasthalter at Sard Verbinnen and Co. Oh, and with the pandering financial mainstream media in tow!

In cyclical convergence of hedge funds with mutual funds, Mr Cohen should know that employing a public relations company in non-transparent world should bring about new alternative media explosion. And not all reputation or hype is good - right or wrong! "Garsthalter Gas" has managed to sound the reputation clarion about "Stevie" and his  "insider trading buddies" - so SAC-Saga is not quietly going away.
SAC is now renamed to 72Point Asset Management and with new makeover into a "hedge fund family office", and its principal Mr Cohen is awaiting debarment from securities industry for running an insider trading racquet and pleading guilty on on 4 counts of securities fraud.  Rather than being informatively to the point, the above listed smokescreen stories are primarily designed to distract and detract from the main embedded and often hidden agenda. FPM is incensed enough to aim to set the record straight. 

A Soft-Landing Pay-off for  Steven Cohen’s Avatars Steinberg and Martoma is the obfuscated real story and our alternative headline. If court proceedings is indeed a soft landing we expect Mr Cohen won't be barred from the securities industry. Without the good old fashioned ‘U.S. Justice For Sale to Billionaires’ plutocracy, the court case should now be culminating into a proverbial spectacular car-crash scene for the ‘perps’– i.e. Mr Martoma and Mr Steinberg finally co-operating towards criminally indicting kingpin Mr Cohen.  Testimony or co-operating witness plea against Mr Cohen in exchange for a reduced sentence especially in Mr Martoma's case should still be possible, as he is still awaits sentencing according to legal professionals. A car crash scene for the insider trading perpetrators and web-of-securities-fraud Mr Cohen was anticipated. An epic car crash serving to appease higher social values of financial integrity, securities enforcement justice and the wider public interest benefits. These virtuous values should still matter even for appearance sake! 

The pending criminal court proceedings against former SAC portfolio managers  Mr Steinberg (appealing his conviction and sentencing) and Mr Martoma (awaiting his postponed sentence hearing) are simply playing out the ‘global resolution’ of the July announced criminal indictment against SAC Capital (United States v. S.A.C. Capital Advisors, L.P., et al., 13 Cr. 541 (LTS)).

 A guilty plea and a record dollar settlement of US$ 1.8 bn, including the US$ 616 mn civil forfeiture in earlier settlements related to the two parallel insider trading cases at SAC’s sub-funds Sigma and CR Intrinsic.  The respective criminal cases against SAC are in fact the current pending appeal cases involving Mr Steinberg when at Sigma and Mr Martoma when at CR Intrinsic.

A plea bargain by the convicted ‘perps’ in exchange for a lighter prison sentence of 5-6 years instead of the guideline 10-20 years that’s been threateningly touted as media distraction in both cases, was anticipated. As reported in FPM’s coverage “TheCalm Before The Storm: SAC Takeaways – Part 1”, not many expected a mere 3 ½ years sentence for Mr Steinberg, having being found guilty on all 5 charges. Mr Martoma's sentence hearing is postponed. We don’t believe it is a prosecution tactic to make him sweat, but rather to dramatise the judicial masquerade.

As early as September 2013, during the mentioned settlement negotiations, there must have been strong possibility of prosecution evidence leading directly toward incriminating Mr Cohen. Which we believe will become apparent in the SEC censure against Steven Cohen when it is commenced as scheduled in August.  Whether enforcement authorities are successful in banning him permanently from practicing the industry or a lap-wrist limited ban. Those civil administrative proceeding has now been re-scheduled for August this year. Watch this space!

To avert guilt and reputation damage from such a disgraceful banishment from securities investments Mr Cohen has reportedly hired the legal heavyweight David Boies, towards end of last year. What the myopic muppet reporters didn’t point out, in any certain way, the numerous class actions unfolding from the 4 counts of securities fraud guilty plea that SAC Capital has submitted to the courts. FPM are canvassing litigated stock-holder's registrar firm. Watch this space!

"If you expect to lose a case, you settle when the situation becomes dire, you try to save face by claiming that you are a responsible person doing it to avoid anyone else having to suffer, along with the formulaic 'to avoid the cost and distraction of a trial.'" Erik Gordon, a law and business professor at the University of Michigan. " Reuters, Sept 25, 2013

The unexpectedly light sentence for Mr Cohen’s oldest colleague does mean that SAC Capital's US$1.8 bn 'payoff' in early November last year was ‘global’ plea settlement. A settlement which precluded further evidence being solicited to incriminate Mr Cohen himself despite admission of guilt for the firm bearing his name in the settlement. A done deal which was speculated in preliminary plea discussions in September and agreed by November. Remember SAC was only indicted at the 11th hour due to 5-year statute of limitations about filing charges from the date of the original stock trading incident. SAC was indicted on July 25th that same year. Below is one of the few indications that the ‘global resolution’ of the case in fact occurred:

A criminal defense lawyer, who did not want to be identified because he has had some involvement in the SAC Capital litigation, said he would be surprised if the hedge fund's lawyers agree to any deal short of a global settlement. He also said he would not approve of any deal that did not rule out the possibility of prosecutors subsequently charging Cohen.Reuters Sept 25, 2013 

Further systemic-hypocrisy in financial services is showcased when Federal enforcement’s prosecution and SAC’s defence parties got together with their highly-paid attorneys, the April sworn-in SEC chairman Mary Jo White was rhetorically warning of a change towards will hold individuals accountable to securities fraud and that financial settlements should not be seen as merely a cost of doing business. We applaud Mary Jo White in her stance but in our reputation risk thesis she could just be another regulatory “bag of wind”. She has also avowed to modify a decades-old SEC practice of letting defendants settle without addressing the alleged wrongdoing. Watch this space!

I want to be sure we are looking first at the individual conduct and working out to the entity, rather than starting with the entity as a whole and working in. It is a subtle shift, but one that could bring more individuals into enforcement casesRedress for wrongdoing must never be seen as a cost of doing business made good by cutting a corporate check” SEC Chairman Mary Jo White in a speech at the Council of Institutional Investors conference in Chicago, Sept 26, 2013

In FPM’s fair and diligent way of exposing the vital truths in the obfuscated SAC-saga there has been one legal explanation in the press as to why SAC Capital the firm can be convicted but yet the 100% owner is able to dodge criminal prosecution. Here are the explanations of New York Times via its Dealbook section.

…As long as prosecutors can show that SAC traders acted “on behalf of and for the benefit of” the fund when trading illegally, then a jury is permitted to impute liability to SAC itself.  Peter Lattman of New York Times, Sept 24, 2013

…The law of corporate liability allows the government to attribute the bad acts of employees to a company as long as the employees acted “on behalf of and for the benefit of” the company”  By Ben Protess and Alexandra Stevenson, of New York Times, February 2, 2014

The Court proceeding has been portrayed by the main-stream-media and PR via "Gasthalter’s Gas" as judiciously weighed-up and hotly litigated cases leading to fair-verdict convictions and respective penalties. Make no mistake, the preservation of the status-quo of plutocratic hedge fund billionaires is a defeat for the securities enforcement authorities towards the public interest.  It is clearly not in the public interest if capital market integrity and judicial judgement becomes a mre public relations whitewash.  An expediently lenient sentencing of Steinberg and Martoma stinks of done deal and masquerading court justice. 

We know closed-door negotiations took place as regards the conditional guilty plea payoff asserted by SAC defence attorneys. The guilty plea, US$ 1.8 bn settlement involving makeover in to a family office with new name 72Point Asset Management was no small concession by Mr Cohen. Since the done deal payoff the reality about the court proceedings is a specious court drama. The most recent episode of this drab soap is with Judge Sullivan presented as having erred in his interpretation of what legal components constitute an illegal insider trade. Really! Suggesting those previous parallel trial judgements and that of Steinberg could be vacated or re-tried. This intended cliff-hanger in Steinberg case affects Anthony Chiasson and Todd Newman judgements, which are also now pending appeals. FPM understands this is a red-herring story, as FPM principles have all been examined on CFA Code of Conduct and Ethics and none remember that to commit insider trading there must be knowledge of payment to the tipster! Legally speaking we cannot confirm it may not be a ruse.

In any case, Judge Sullivan’s case pertaining to the shared material non-public information regarding Dell and Nvidia, has no parallels with Elan and Wyeth’s drug trails case in Judge Paul Gardephe’s oversight of Mr Martoma’s criminal trial. Really, what nonsensical farce is playing out since the global deal between authorities and Mr Cohen had been consummated by the multi-billion dollar global settlement in November 2013.

The minimally covered story by the MSM financial press is the announcement of defence’s request for postponement of Mr Martoma’s sentencing hearing, originally scheduled for 10th June, a day before Mr Cohen 58th birthday.

When FPM searched keywords “Martoma sentence” on his scheduled trial date, there was minimal coverage of the online news about the postponement. Is it possible that New York Times DealBook site and the Stateside pink sheets “Wall Street Journal” and others are concealing the important announcement of the sentence hearing being kicked into the proverbial long grass. Only Bloomberg and its sub-division BusinessWeek seemed to be reporting at all. A wide-circulation PR announcement about the sentence hearing delay would have raised too many questions. So Mr Cohen’s PR-agent Gasthalter’s Gas and SEC spokesman may strategically have disseminated news only to selective journalists.  A conspiracy and mere journalistic incompetence are also probable explanation to the omission. A delay in court proceedings which will allow Mr Martoma to still plea bargain with prosecution for a reduced sentence or accept facing severer sentence and financial penalty. In dramatic terms, the prosecution is haranguing Mr Martoma for an un-deliberated hurried decision, by seeking a postponement only till the month-end of June. If prosecutors are involved in the stage-managed theatrics, post global settlement, then shame on the profession. The Probation Department had reportedly (see excerpt below) sent Mr Martoma’s attorneys sentencing guidelines which must have had him and his beautiful wife and three children jumping out of their skins:

…Martoma argues federal sentencing guidelines require a term of between 5 and 6 1/2 years. He claims he’s responsible only for the bonus he received, not the entire gain by SAC… Martoma’s lawyers requested in a letter to U.S. District Judge Paul Gardephe last week that the June 10 sentencing be postponed for more than a month, citing a late report by the court’s Probation Department. The department said sentencing guidelines call for Martoma to receive between 15.7 years and 19.6 years in prison, according to a court filing by Martoma. Federal prosecutors in the office of Manhattan U.S. Attorney Preet Bharara agreed to the delay, but want it rescheduled for later this month… Bloomberg BusinessWeek June5th, 2014

Talk about mosaic research! That’s what understanding the public relations announcements via the pandering muppets of the mainstream financial media is like. Alternatively, ask Sherlock Holmes to understand conclusions! The reporting is tantamount to information degradation of very little added value. That’s why we had the old maxim “Don’t believe everything you read in the papers!

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