Billionaire hedge fund manager Steven Cohen has suddenly become a populist — at least that's what his lawyers are trying to argue.
Cohen and several of his SAC Capital executives are facing potential federal racketeering charges as part of a long-running insider trading investigation. His lawyers claim that if prosecutors file criminal charges his firm would have to shut down, forcing 1,000 employees to lose their jobs.
Or, put another way, what Cohen's legal team is effectively saying is that regulators will be responsible for putting the secretaries, mail clerks and other regular folks at SAC Capital out of work and that is simply unconscionable.
In reality, the argument is at best disingenuous, and at worst nonsense. As one securities fraud attorney not involved in the SAC case says, the "don't send me to jail because my family will starve" argument doesn't work. It also doesn't work in the case of your employees, and in Cohen's case, it's safe to say nobody is starving.
Cohen is estimated to be worth $9.3 billion,making him among the 50 richest individuals in the U.S. He spends his annual take-home pay of about $600 million for lavish homes and an art collection valued in the hundreds of millions of dollars. In fact, in March, less than two weeks after paying the U.S. government $616 million to settle insider trading accusations in which he did not have to admit any wrongdoing, Cohen purchased a $155 million Picasso.
Most likely, his employees aren't hurting too much either. According to careers website Indeed.com, the average salary of a hedge fund CEO's executive assistant in New York is $93,000 per year. Administrative assistants, meanwhile, make $59,000 per year. And that's just the average, meaning any hedge fund. Not necessarily a big name like SAC, which with $15 billion under management ranks as one of the industry's largest funds.
What Cohen's lawyers are almost certainly trying to do is conjure memories in the mind of prosecutors and investigators of Arthur Andersen's prosecution and subsequent demise that resulted in the loss of about 85,000 jobs. Except SAC Capital is no Arthur Andersen, and regulators know that.
While regulators have been more conscious of job loss since Arthur Andersen, it doesn't really factor into the decision to prosecute a case of securities fraud if evidence of wrongdoing has been found. Cohen himself has not been charged with any wrongdoing, but nine of his former employees have been either charged, implicated, or subpoendad over insider trading schemes.
Historically, hedge funds don't gain a lot of sympathy making the job loss argument, given their immense wealth and reputation for greed, noted the securities fraud attorney.
While the job loss claim won't hold water, Cohen's argument that SAC will almost certainly see its demise if formal charges are brought is a strong one. Hedge funds are much more susceptible to implosion than companies in other industries, given the fact that investor confidence is very closely tied to the perception and reputation of the fund's top executives.
Hedge fund investors are notoriously skittish, and it doesn't take a lot for them to run for the door at the first sign of regulatory trouble. SAC is witnessing this first hand, and is desperately trying to curb withdrawal requests ahead of a June 3 redemption deadline that followed the firm's announcement that it would cease full cooperation in the government's investigation of insider trading.
Already, investors have filed $1.7 billion in redemption requests, and rumors of a big pullout by its largest investor, Blackstone Group, are swirling.
It remains to be seen what will become of the firm and its employees. But if SAC has to shut down and employees find themselves out of work, maybe Cohen can provide a recommendation or help them find another gig. He's a man-of-the-people populist, after all.