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SAC Capital Insider Trading – Should Investors Even Care?

SAC Capital Advisors, led by the billionaire Steven A. Cohen, was called “a veritable magnet of market cheaters” by federal prosecutors who indicted the Wall Street hedge fund on insider trading charges this week.

It’s a rare move in that regulators have targeted such a big firm with such a big trader at the top of the food chain. But in regards to SAC Capital insider trading allegations… most investors simply don’t seem to care.

Should they?

Well, it’s obviously a bad scene when the SAC Capital insider trading case focused on over a decade of shenanigans and that generated hundreds of millions of dollars in profit for the firm through suspect means.

Even after the likes of Raj Rajaratnam and Bernie Madoff in recent years, prosecutors label the SAC Capital insider trading case as “on a scale without known precedent in the history of hedge funds.”

But most of the reaction by individual investors has been one big shrug.

One group of investors thinks that there’s nothing new about Wall Street being rigged in favor of the big guys.  High frequency trading, too-big-to-fail bailouts, golden parachutes for inept CEOs… the SAC Capital insider trading indictment is just the latest chapter in an old tale that American investors are painfully familiar with.

And the other group, remarkably, thinks that after the financial crisis that theatrical charges like this are somehow proof that the system “works” – that the bad actors are indeed being punished and adults are in charge of the show.

It’s impossible to reconcile those two points of view… and that, perhaps, is the most important lessons from the response to the SAC Capital insider trading indictment.

Yes, it’s hard to get ginned up about glacially slow legal proceedings generally and particularly hard to get in a tizzy about yet another hedge fund behaving badly. But this SAC Capital insider trading case is not just noise – because it reinforces the need for a focus on this kind of behavior, either to beat back rampant corruption or to continue a recent effort to take offenses like this seriously.

As Cullen Roche writes:

Wall Street continues to be one of the few places on earth where you can continually prove yourself worthless or a damn near criminal and someone will always either forgive you or give you a second chance.  If you think the financial crisis helped clean up this industry you’re really out in left field.  Maybe on the warning track.  In foul territory.  With your face pressed against the wall.
The SAC Capital case has the ability to change the narrative from one of rampant corruption and loose enforcement to one of a continued effort to change the way Wall Street works.

That makes this case mighty important – not just because of its individual merits, but because of what it means for future enforcement as well.

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Jeff Reeves is the editor of and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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