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2. The real beneficiaries of stock buybacks

So far, neither Steven Cohen nor his hedge fund firm SAC Capital has been charged with any crimes, though the Justice Department may well do so over the next few months. But has he already been punished? And if so, is this punishment unfair?

On the surface, it's clear that the on-going drama has affected his bottom line dramatically. Within a few years, the fund will de facto be a family office, as more limited partners pull their investments. It's surprising that so many held on for as long as they did. Given the strong results over time -- an average return of nearly 30 percent a year net of fees since 1992 -- you can see why they would want to stay invested. But the realities of modern hedge fund investing emphasize compliance, and barring something dramatic, investors will have to fade away from the firm.

So is this fair?

Especially at a time when prosecutors are wary of meting out the corporate death penalty -- in the manner of Arthur Andersen in the wake of the Enron scandal -- it may seem like an unfair outcome. But in the end, the law of the jungle takes precedence. Investigators have a lot invested in bringing some sort of charges against the firm.

This is a war, and there will be some collateral damages. If it turns out that Cohen and SAC Capital go uncharged or if they are charged and found not guilty, we might all look back sympathetically and lament the fact that the controversy hit the business so hard. But until then, the gloves are off.

SAC Capital is putting on a brave face and is trying to carry on as normal. But that's really not possible. Most people expect some sort of downsizing to occur, though Cohen has said he does not expect to take this step.

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Read more about: Hedge Funds, insider trading
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By Jim Kim

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3. Mathew Martoma gets trial date

Companies are engaging in a heavy stream of stock buybacks, and that will most assuredly benefit shareholders, right?

It's tempting to say as much. The whole point behind buybacks is to reduce the number of shares outstanding, which can lift earnings per share. Why else would companies so energetically embrace this capital-return method?

American companies bought back stock in 2012 to the tune of $450 billion, a record amount, one that will likely be surpassed in 2013.

But the other reason for buying back stock is to facilitate options grant programs for employees and executives. The reality is that all those options grants, once they are exercised, are quite expensive in that the number of shares outstanding can increase quickly. To prevent dilution, companies have to buy back shares strategically.

Analysts at Societe General have concluded, as noted by Alphaville, that we seem to be at an inflection point. In the first quarter of 2013, buybacks aimed at offsetting the dilution from executive stock options surpassed the amount of buybacks aimed at reducing the number of share outstanding.

"In fact, buybacks done to reduce the overall share count reached a 32 month low in the first quarter," Alphaville wrote.

The dilution would be even greater if buybacks for compensation purposes weren't carried out. Yes, there are multiple purposes at issue. But in the end, shareholders benefit to some degree even when the primary purposes is to facilitate options grants. Alphaville puts it like this: companies "buy back their own stock in order to push up equity prices, pay dividends, help shareholders out, but increasingly to funnel money to executive pockets."

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Read more about: shareholders, Stock Buybacks
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By Jim Kim

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4. Goldman Sachs' food controversy reignites

Mathew Martoma has held tight to the Omerta code. He has steadfastly refused to testify against his former boss, SAC Capital's Steven Cohen, which has frustrated government investigators. They now have no choice but to throw the book at Martoma, inflicting maximum pain.

The latest is that Martoma has been given a November 4 court date, which represents the earliest he can go on trial. We may see the court date pushed back if a superseding indictment is handed down.

The defense has suggested that a new indictment is indeed likely, and no one would be surprised if it contained some additional charges. Indeed, an assistant U.S. attorney has told a judge that the government had received new information from a bank and a second batch of emails and back-up tapes from SAC, all of which shed new light on the Martoma case, according to the Financial Times.

More specifically, the lawyer said SAC initially "gave the government emails related to the trades in Elan and Wyeth before Mr Martoma was indicted. Since then, he said, SAC has turned over all emails involving Mr Martoma and back-up tapes for the four years he worked for the hedge fund."

There is still time for Martoma to switch gears and decide to cooperate, but that doesn't appear likely. The best hope for a powerful cooperating witness may be Michael Steinberg, but he too has shown a willingness to fight charges rather than turn on Cohen. Steinberg is set to go to trial on Nov. 18.

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Read more about: insider trading, SAC Capital
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By Jim Kim

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5. More hedge fund employees want to save the world

One of the longer-running controversies regarding speculative trading of commodities has been the ultimate effect on food prices in the developing world.

Banks and hedge funds have been roundly criticized around the world for their dominance in commodities markets. According to one U.N. expert, investment in food commodities by banks and hedge funds has risen from $65 billion to $126 billion over the past five years. The speculative activity, in one view, has warped the demand and supply curves such that prices no longer reflect the underlying economic dynamics.

The Guardian has chosen to revive the issue, in regards specifically to Goldman Sachs. The author notes that the bank's charitable arm funded food programs around the world.

"The irony, of course, is that while they're serving up a few meals, their core business is virtually starving people at the same time. In 2012, the US investment bank made an estimated $400m from speculating on food. The World Bank estimated in 2010 that 44 million people were pushed into poverty because of high food prices, and that speculation is one of the main causes."

The author continues, noting that, "For several years, it was hotly debated whether speculation in food commodities drives up prices. But the evidence now firmly says it does, and that there's little correlation between rising prices and actual supply and demand. There are now well over 100 studies which agree, from sources as varied and valuable as Harvard University, the Food and Agricultural Organisation and the United Nations."

It will be interesting to see how banks grapple with this going forward.

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Read more about: Goldman Sachs, commodities
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By Jim Kim

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