Crime and Punishment

I heard, today, of another case of a bank (well, really a hedge fund, but that's a fairly blurry line) getting fined for wrongdoing.  In this case, it is SAC Capital being fined by the SEC for insider trading.  I'm glad to see that there's at least a little enforcement here, although I wonder if the punishment fits the crime.

What is known is that the firm admitted wrongdoing (rare, these days), and is being shut off from outside investors (this was also a surprise), and is paying $1B.  That sounds like a lot of money, but I wonder if it really is.

The NPR piece about it, this morning (on Marketplace, I think) mentioned a single one of the incidents on which this case was based, netted $300M.  Which begs the question of whether the firm still came out ahead, even after paying the fine.  Given that they apparently were getting 25% annual returns, and that that was only one incident (though undoubtedly the biggest one), I suspect, in pure dollar terms, that they're still coming out ahead.

If that's the case, you have to wonder if that actually serves as disincentive for those doing the trading.

The one reason I'm not sure it isn't one is that, for one, they're being cut off from outside investors.  That could be a deathknell; we'll see.  And two, there are ongoing cases with eight of the employees as well.  If those eight are nailed to the wall, then perhaps there's a bit of deterrent for the future.  If not, this seems like another slap on the wrist (a la JP Morgan, paying seventh months profits (yeah, that $13B fine seems like a lot until you put it in those terms) for mortgage fraud that robbed thousands (via pension funds, probably tens of thousands) of people out of their homes and/or savings) to the banking industry.

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