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It's been long known that the power to tax is the power to destroy. That's one of the reasons people are so upset that the awesome destructive power of the IRS was used for partisan political purposes in persecuting conservative organizations and leaking their donor lists to liberal groups.
Citizens are learning that regulatory agencies can destroy as effectively as the IRS. The 200-year-old New York Stock Exchange was damaged to the point that it could be bought by a 17-year-old startup that trades in less regulated markets. Government regulations are making it essentially impossible for ordinary citizens to invest in the most promising start-ups.
Now we find a highly profitable business being destroyed by the government's power to prosecute.
The New York Times reports that the power to prosecute is destroying a billion-dollar business that employees more than 1,000 people.
SAC Capital Advisers, the besieged hedge fund owned by the billionaire stock picker Steven A. Cohen, has told its employees that it will survive a wave of investor withdrawals during the government's intensifying investigation into insider trading at the firm.
Investors in SAC have asked to pull a significant amount of money from the fund by a quarterly deadline that expired on Monday, according to an internal e-mail sent by SAC's president, Thomas J. Conheeney. The amount was not disclosed, but it was said to be more than the $1.7 billion taken out earlier in the year, according to a person briefed on the matter. That would leave SAC with only a fraction of the $6 billion in outside capital with which it began 2013.
The Securities and Exchange Commission has convicted four of SAC's employees of insider trading. Four others, including Mr. Martoma, a former portfolio manager, have pled not guilty. The government claims that these employees obtained confidential information that would affect stock prices and made illegal profits by trading on that information.
Mr. Cohen divided his employees into 140 teams to which he allocates money investors give to him. These teams get to keep as much as 25% of the profits they make. This gives them incentives to make profitable trades.
In spite of rewarding employees so highly, the fund has returned nearly 30% per year on its investors' money since 1992. This year, SAC has returned only about 7%.
Mr. Cohen vehemently denies being involved in insider trading and states that it will not be tolerated in his firm. His statement is backed up by his full cooperation with the S.E.C. in investigating wrongdoing by his employees. Mr. Cohen and SAC ceased cooperating, however, when the S.E.C. spoke of charging Mr. Cohen and / or SAC with criminal misbehavior.
... the S.E.C. is also weighing a civil action against Mr. Cohen for failure to supervise his employees, according to people briefed on the case.
... prosecutors are weighing a number of possibilities, including bringing charges against SAC related to the Martoma case based on a theory of corporate criminal liability, according to people briefed on the case. [emphasis added]
The S.E.C. brought charges of insider trading against 9 SAC employees, four of whom have admitted guilt. Instead of stopping after exacting a record $616 million in penalties, the S.E.C. is considering bringing charges against the boss for failure to supervise his employees and is threatening criminal charges against the business for profiting from the employees' illegal activity.
What does this tells us?
We know with absolute certainty that Mr. Cohen is not a a big-time Democrat. How do we know this?
Our "justice" department has been anything but even handed in choosing whom to prosecute for a long, long time. Back in 1989, Leona Helmsley had her husband's employees work on her house. She didn't declare the value of their work as income. That's tax evasion. She went to jail.
In 2008, Mr. Obama nominated Tom Daschle to be head of Health and Human Services. The newspapers found he had received a great many non-business rides in an automobile owned by a business whose chauffeur was paid by the business. He didn't declare the value of the rides as income. That's tax evasion.
Despite having done precisely what Leona Helmsley had done, nobody even said Boo! to him. Why not? Because he'd been Democratic Senate majority leader. Big-time Democrats aren't prosecuted for tax evasion, not even Rep. Rangel or Tim "Turbo Tax" Geithner.
If that isn't enough evidence of Mr. Cohen's political standing, the Justice Department's handling of the Corzine case gives proof that any jury in the land would accept.
Jon S. Corzine was a US Senator from New Jersey and later won election as the state governor. He's been known to flout rules both small and great. When his leg was broken in a traffic accident while he was being chauffeured by a New Jersey state trooper, it was found that he hadn't been wearing a seat belt as required by law.
The Securities and Exchange Commission recently pointed out that New Jersey had lied to investors about its financial woes when selling bonds. The worst of the abuses happened while Mr. Corzine was governor. Instead of charging any of the people involved, the S.E.C. asked New Jersey to promise not to do it again.
After being defeated by Republican Chris Christie in 2010, Mr. Corzine was hired as the boss of trading firm MF Global in March, 2010.
Jon Corzine reverted to his skills as a top Goldman Sachs trader and bought bonds issued by the Italian and Spanish governments. Traders were bailing out because they believed that not even the Germans could afford to pay off the bonds.
As a well-connected Democrat, Mr. Corzine would have known that the Obama administration didn't want financial problems in Europe to hurt the American economy and damage Mr. Obama's chances for re-election. He knew that the US government would help out. So did we, for that matter, but alas, we had no money to put where our mouths were.
He bought $6.3 billion worth of distressed bonds, borrowing about 80% of the money. Even though those bonds seemed risky enough to set off alarm bells in all the regulatory agencies, he knew they'd pay off in full because the Obama administration stood behind them with our tax money.
The New York Times tells us how MF Global went bankrupt:
... for the first time it is now clear that ratings agencies knew the risks for months but, as they did with sub-prime mortgages, looked the other way until it was too late, underscoring how three years after the financial crisis, little has changed on Wall Street. [emphasis added]
Despite all the earlier criticism and despite the new powers given them by Dodd-Frank, the regulators "looked the other way." Need we ask why? An agency which isn't part of the government caught on:
When Finra [Financial Industry Regulatory Authority] realized what MF Global was doing, it grew concerned. The Wall Street self-regulator told MF Global to set aside enough money in case the trades went bad. But Finra didn't have the authority to force the firm to do so - that power was in the hands of the Securities and Exchange Commission, whose rule Finra was citing.
Finra couldn't force MF Global put put up money to cover their trades. The S.E.C. had the authority, but they weren't doing anything.
Finra finally got the S.E.C.'s attention even though Jon Corzine is the biggest possible sort of Democrat except for President Obama himself. After weeks of dithering, the S.E.C. grudgingly asked MF Global to put up an additional $200 million.
This was the beginning of the end. Everybody who traded with MF Global panicked. Those who'd lent money to buy all those bonds demanded more collateral. Other firms refused to trade. The stock price plunged. MF Global went bankrupt on Oct 31, All Hallow's Eve.
Along the way, MF Global used $1.2 billion worth of customers' money to try to satisfy creditors and avoid bankruptcy, knowing their bets would pay off in the long run. That's a criminal act. Having helped write Sorbanes-Olxey while he was a Senator, Mr. Corzine presumably knew he shouldn't have used customers' money to save his firm. As CEO, Jon Corzine is personally accountable for that action under the law he helped write.
The Sarbanes-Oxley law gives the government power to punish financial misdeeds of CEOs. The MF Global employee who initiated the wire transfers which moved customer money out of the firm pled the 5th Amendment to avoid incriminating herself. She said she'd testify against the higher-ups who ordered the transfers if someone would grant her immunity, but the Justice Department wasn't interested.
On April 24, 2013, the Wall Street Journal reported that the bankruptcy trustee who's trying to get the customer's money back has sued Mr. Corzine because of "acts and omissions" that were "grossly negligent" and led to the bankruptcy.
Meanwhile, a criminal case into why [customer] money was removed from MF Global hasn't shown much momentum...
More than a billion dollars worth of customer's money went missing, an employee offers to testify, yet the criminal case against MF Global isn't moving.
SAC Capital Advisers returned profits of 30% annually since 1992. One SAC employee pleads guilty to insider trading, four others plead not guilty. The firm cooperates. There's no evidence connecting the boss with the insider trades, yet the S.E.C. is considering criminal charges against the firm.
Give how the S.E.C. merely criticized the State of New Jersey for defrauding investors and didn't charge Mr. Corzine with misusing customers' money, yet is proceeding against Mr. Cohen's SAC, any jury in the land would conclude that Mr. Cohen simply isn't a big-time Democrat.
Being a big enough Democrat gives you a license to steal.