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So who really won the SAC Capital enforcement sweepstakes?

The U.S. Attorney for the Southern District of New York has claimed victory, as well he should. He secured a massive $1.2 billion settlement and essentially forced the troubled hedge fund firm to plead guilty to no fewer than four counts of security fraud and one count of wire fraud. SAC Capital became the first Wall Street power firm since the 1980s to actually confess to criminal violations of the law—no small achievement. And of course, prosecutors have put founder Steven Cohen out of business as a third-party money manager. There's plenty for prosecutors to crow about.

And yet Cohen himself was never charged with any criminal conduct personally. And that has sparked a lament in the New York Times about the fairness of it all. "A company can't commit a crime," one expert was quoted. "They should only go after the people doing things wrong. There are innocent bystanders, a lot of them, who get hurt. Why is the villain the one who sweeps out the floor every night?"

To be sure, Cohen has been hit with civil violations. But given the extent of the crimes that his firm has just admitted, one could make the case that he was very lucky.

It's no secret that prosecutors were all but lusting to hand down criminal charges. All they needed really was the cooperation of either Mathew Martoma or Michael Steinberg, both of whom were sought out as witness against their former boss.

Despite an aggressive push to flip them, they have both decided to take their chances at trial. In the process, they granted Cohen a reprieve. He should be thanking them.

So while some may be disappointed that Cohen never faced the possibility of jail time, it was not for lack of effort.

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2. Steven Cohen, the legacy

By Jim Kim

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Steven Cohen might as well have been taking performance-enhancing steroids.

Because when people look back on his phenomenal track record as an investment manager, they will mentally see an asterisk, especially now that his firm has admitted to five counts of fraud related to insider trading and agreed to a $1.8 billion settlement. A plea hearing is set for Friday.

Bloomberg puts it well. "Like Barry Bonds, the professional baseball player whose home-run records have been tainted by allegations of illegal steroid use, Cohen won't be able to escape this question: did he excel by cheating?"

So is this enough to keep him out of the hedge-fund Hall of Fame? The thought that it may prevent him from being considered alongside the greatest investors of all time apparently gnaws at him.

"He is, more than most big-name hedge-fund managers, obsessed with winning, whether at golf or at building an investment empire.

"Cohen's goal has always been to be acknowledged as something greater than a masterful trader, say the friends and colleagues, who asked not to be identified to avoid hurting their relationship with him. Rather, he wants to be included in the pantheon of world-class money managers such as Warren Buffett and George Soros, whose savvy investing history and prescient market calls draw a following on Wall Street, these people say.

"Now he'll be infamous for his firm's record fine for insider trading."

That said, there are second acts on Wall Street. After he was released from prison, Michael Milken, the one-time king of the high-yield market, fought quite successfully to remain relevant.

Perhaps Cohen will do the same.

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- here's the article

Read more about: insider trading, SAC Capital
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3. AIG to sue Morgan Stanley?

By Jim Kim

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4. Pimco mutual fund eclipsed by Vanguard fund

Back in August of 2011, AIG sent a shudder through a lot of Wall Street banks when it filed a lawsuit seeking $10 billion from Bank of America for---what else?---misrepresentation of mortgages.

In what some saw a mere "score-settling," AIG alleged "massive fraud" by Bank of America and its Merrill Lynch and Countrywide units, arguing that they packaged and sold MBSs replete with defective mortgages. The lawsuit was one of the largest of its kind brought by a single company.

That case, which is still wending through the system, gave rise to the notion AIG would aggressively file a raft of suits against of banks, including the likes of Goldman Sachs, JPMorgan Chase and others. Those suits were slow to develop for a lot of reasons, however, including a long-simmering fight with the Fed's Maiden Lane II, which argued that AIG gave up the right to sue when the entity bought the securities.

But will the push to file more suits now heat up?

Reuters reports that AIG may indeed file a lawsuit against Morgan Stanley over the $3.7 billion worth of mortgage securities that the bank sponsored or underwrote from 2005 to 2007 and subsequently sold to AIG.

AIG has terminated a "tolling agreement" with Morgan Stanley, which allowed the companies to try to settle their dispute out of court. The termination will be effective Thursday, according to Morgan Stanley's filing.

This could well presage other suits.

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- here's the article

Read more about: Bank of America, lawsuit
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By Jim Kim

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5. Jamie Dimon still a Washington powerhouse

The king is dead. Long live the king.

Hard to believe, but the Pimco Total Return fund, run by the esteemed Bill Gross, is no longer the world's largest mutual fund. That mantle was wrested away just recently by the Vanguard Total Stock Market index fund. As noted by Bloomberg, the Pimco fund has shrunk by $37.5 billion since the start of this year, ending last month with $247.9 billion in assets. The Vanguard index fund meanwhile ended October with $251 billion in assets under management.

Pimco reigned as the world's largest fund since 2008, when the financial crisis and the Great Recession began taking their tolls. The bond market remained in major bull mode, just as the equities market began an extended swoon that didn't reverse until fairly recently.

So what to make of the recent reversal of fortune?

Some might see this as a sign of a rotation that many feel is inevitable, as the bond market finally starts to decline after an historic multi-decade run, just as equities take off all over again.

My sense is such conclusions are still a bit premature. The Federal Reserve, after all, may no longer be of a mind to taper soon, given that the economy has not come roaring back robustly. Lacking a taper, the upward pressure on rates may weaken.

We may see these funds duel for the title, with a lot of flip-flopping on a monthly basis, for the time being. If bond fund redemptions start to level off, that may be an indication that the Pimco may be poised to reclaim the title.

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- here's the article

Read more about: Mutual Funds, Vanguard
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By Jim Kim

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