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The flurry of activity in the investigation of SAC Capital and embattled founder Steven Cohen reflects a pressing deadline. A five-year statute of limitations on bringing criminal charges against Cohen and his company looms this summer. So it is really now or never for prosecutors.

One reading of the tea leaves suggests that Cohen himself will likely be spared. As DealBook notes, federal guidelines discourage prosecutors from soliciting grand jury testimony from the target of an investigation. So the subpoena issued to Cohen is perhaps an indication that he himself is not the target of the investigation right now. But his company most assuredly is.

One immediate task for Cohen is to keep as much of his outside money invested as possible. That task became a lot harder in the wake of the news that the firm will reduce its cooperation with the government and cut back on its transparency about the investigation with limited partners.

An ominous sign for the hedge fund firm was delivered by Blackstone, which has about $550 million invested with SAC Capital. According to the WSJ, the firm is "preparing" to redeem up to $300 million. That move, should it come to pass, just might open the gates a little wider, as other limited partners would be tempted to follow suit. Mass redemptions would not prove fatal as the majority of assets under management -- about $9 billion of $15 billion -- are owned by insiders, mainly Cohen himself.

In any case, it looks increasingly like (personally anyway) Cohen has weathered the criminal prosecution storm, unless a witness were to step forward and agree to testify against him. But that same cannot be said about his company. Not yet anyway.

For more:
- here's the article

Read more about: insider trading
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2. Rajat Gupta's sad decline

By Jim Kim

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3. Principal gain window closing on China banks

Kudos to the New York Times Magazine for delivering the most complete picture yet of Rajat Gupta, the former head of McKinsey and director of Goldman Sachs who was found guilty of insider trading. His fall from grace ranks as perhaps the most stunning since the insider trading investigations began.

Most of the others who have been sent away are understandable. They've become almost stereotypes: hedge fund managers and would-be billionaires who got caught. Their actions are entirely believable.

But Gupta was another breed all together. In some sense, he would be the last person to be seduced by the sly charms of Raj Rajaratnam. The Rajat Gupta story is all about how a once principled man was so wholly compromised. It's almost as if he was in a trance of some sort. Rajaratnam, who is serving an 11 year sentence, truly was a brilliant manipulator.

It may be that Gupta's legal appeal will pay off for him. Legal experts seem to think he has a decent chance of prevailing in his bid to have the wiretap evidence (indirect) that was used by prosecutors dismissed. That he was allowed to stay out of jail pending his appeal has been taken as a sign that some judges are sympathetic to his arguments. In the end, he might win some reprieve.

But the article details a troubling pattern: Gupta would call his friend after important Goldman Sachs board meetings, and Rajaratnam would soon after make some massive trades on the bank, often making millions. That's hard to explain away.

"Whether Gupta's charge is overturned or not, he will still be remembered as the dignified McKinsey managing director who fell down the money trap and under the spell of a boorish hedge-fund trader, a reality which, in his world, is almost as damning as the crime he stands accused of committing."

For more:
- here's the article

Read more about: insider trading, Rajat Gupta
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By Jim Kim

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4. Delays at all levels in mortgage settlements

I noted recently that big banks were all too willing to sell their stakes in China banks these days. The latest is that Goldman Sachs has launched an offering of $1.1 billion worth of Hong Kong-traded shares in Industrial and Commercial Bank of China (ICBC), basically the bank's entire remaining stake.

Goldman Sachs first started buying shares in the world largest bank in 2006, amid great fanfare. It is not alone in paring back from China banks. HSBC Group, for example, is expected in the next few months to sell its 8.0 percent stake in the Bank of Shanghai, which is on track for an offering soon.

Selling now may give some U.S. banks a chance to book some sizeable principal gains before it's too late. Goldman Sachs' investment will generate about $7.3 billion in profit for the bank, its private equity funds and some senior partners, notes the FT.

Insiders say the main reason behind the sale is "to prepare for changes to bank capital regulations, which make owning equity in another financial institution significantly more expensive."

But the window for meaningful gains may also be closing fast. Non-performing loans in the country have increased for six quarters in a row, "the longest deterioration streak in at least nine years, as economic growth slowed," note Bloomberg.

That's the conventional wisdom as of now. The near-in future of Chinese banks may be anything but rosy right now. U.S. banks may also have grown frustrated with the lack of progress in terms of using their investment stakes to pry open lucrative new markets.

For more:
- here's the FT article
- here's the Bloomberg article

Related Article:
Banks still offloading stakes in Chinese banks

Read more about: HSBC, Goldman Sachs
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By Jim Kim

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5. Could Silver Lake walk away from Dell deal?

The big picture on the sorry state of restitution for aggrieved mortgage holders is that banks have paid less than half the $5.7 billion in cash owed to troubled homeowners under nearly 30 settlements brokered by the government since 2008, according to a Washington Post analysis.

The execution of the several high-profile settlements has been marred by delays and sheer incompetence. Rust Consulting, a politically active Washington consulting firm, has found itself in a harsh spotlight after sending checks to mortgage holders that bounced and then for sending checks for the wrong amount.

The conclusion at this point is that the execution problems aren't likely to be quickly fixed. In some cases, there still isn't even a definitive list of victims who are entitled to some form of restitution.

"Banking industry officials and regulators say the scale and complexity of the settlements have grown over the years, making them difficult to execute quickly. They can involve multiple agencies, banks, lawyers and consultants. In some cases, banks are still identifying people affected or waiting for borrowers to respond to notifications of eligibility. There are also a number of cases in which banks have yet to zero in on how much they will pay out," the article noted.

All in all, more frustrations lie ahead. State governments are increasing enforcement actions against banks based on their inability to comply with national settlements.

For more:
- here's the article

Read more about: banks, Mortgage Settlements
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By Jim Kim

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