According to the Wall Street Journal, Steven Cohen, the founder and principal owner of SAC Capital Advisors LP (“SAC”), will likely not face criminal charges relating to certain trades SAC made in July 2008 allegedly at the recommendation of former SAC portfolio manager, Mathew Martoma.[1]  Martoma, currently under indictment in Manhattan federal court, is accused of recommending to Cohen that SAC sell large amounts of shares in Wyeth and Elan based on insider information Martoma obtained prior to public announcements that adversely affected those companies’ share prices.[2]  The indictment alleges that the trades SAC made in July 2008 based on Martoma’s recommendations netted SAC $276 million, and resulted in Martoma receiving a $9.3 million bonus from SAC.

SAC, itself, appears to have avoided criminal prosecution, at least for now.  This is perhaps because it entered into a civil settlement with the SEC, which a federal judge conditionally approved on April 16, 2013.[3]  Assuming that settlement is made final at some point, SAC will pay over $600 million in disgorgement, penalties, and interest, the largest amount ever in an insider trading case.[4]  SAC, however, neither admitted nor denied any wrongdoing, as is customary in SEC settlements.[5]

The 5-year statute of limitations for an SEC action against Cohen based on the July 2008 trades runs out on July 29, 2013.  So does the statute for a potential criminal prosecution against Cohen.  Despite the impending deadlines, neither federal prosecutors nor SEC enforcement lawyers have filed an indictment or civil complaint against Cohen, or sought to supersede or amend the existing criminal and civil actions against Martoma to add Cohen.

Why not?

It appears that the government lacks sufficient evidence, at least to meet the higher criminal standard of “beyond a reasonable doubt,” connecting Cohen to the July 2008 trades.  The government’s principal evidence appears to be an e-mail from Martoma to Cohen on July 20, 2008 in which Martoma says, “[i]t’s important” that they speak, which was followed by a 20-minute phone call between the two men.[6]  And, in a series of trades over the following week leading up to the July 29, 2008 drug trial announcement, SAC unloaded its entire long position in Elan and Wyeth, engaged in short sales, and entered into various options contracts.

But the government does not appear to know what was said during the July 20, 2008 call because the relevant phones were not subject to wiretap at that time.  Further, though the government has been able to “flip” a number of current and former SAC employees, by offering lesser charges, those employees apparently lack specific information tying Cohen to the July 2008 trades.  And, Martoma, for his part, has refused to do a deal with the government for reduced charges.

Notwithstanding the government’s apparent reluctance to bring charges, it may, still, file them in time to satisfy the statute of limitations based on two things.  First, the government may discover additional evidence linking Cohen to the July 2008 trades in time to indict or bring civil charges against Cohen.  For example, in the SEC’s case against SAC and Martoma, the remaining parties (i.e., the SEC and Martoma) have reached an agreement pursuant to which all of the e-mails of the original tipper to Martoma, a neurologist associated with the University of Michigan who sat on the drug companies’ safety boards, is going to be reviewed by the defendant and by the SEC.  It is possible that something in that large quantity of electronic data could substantiate the government’s belief that Cohen is criminally liable for the July 2008 trades.

Second, the government may have until late August 2013 to bring an indictment against Cohen because another SAC trader, Michael Steinberg, has already been indicted for insider trading in Dell stock for the benefit of SAC through August 2008.[7]  If the government can connect Cohen to the Dell trades and also link those trades to the July 2008 trades as part of a “continuing conspiracy” between Cohen and others, it is possible that the statute would be extended to the end of August 2008.

At all events, absent significant new evidence, it looks like the best the government might do is to have the SEC bring a civil case and attempt to satisfy the lower civil standard of proof of “more likely than not.”  If the SEC did bring such a case and was successful, it could permanently bar Cohen from the securities industry and obtain disgorgement of any personal gains he made as well as impose monetary penalties.  But, again, the evidence would have to be more than tangential and circumstantial.  Thus, in the final analysis, we may never know whether Mr. Cohen is an innocent man or elusive fish.