I remain peeved that, more than four years after the beginning of a worldwide financial crisis brought on by the failure of large financial institutions to accurately report and responsibly manage financial risk, and a year after MF Global stole over a billion dollars from its clients, no senior executive of a U. S. financial institution has been prosecuted under Sarbanes-Oxley, the law passed in 2002 in the wake of the Enron scandal.
While Federal attorneys have lacked energy in pursuing SOx prosecutions, they have been quite busy in chasing after insider trading, with some success. The most recent case involves a former employee of SAC Capital Advisers, a huge hedge fund based in New York.
One data point jumped out at me in the SAC case. Of the firm’s $14 billion under management, $8 billion belongs to the firm’s founder, Steven A. Cohen.
This tells us something important about the economics of hedge funds. I’m sure SAC’s clients, sophisticated investors all, believe they receive benefits from their investment sufficient to compensate them for the risks entailed. But the real money in hedge funds, here as elsewhere, is in running them, not investing in them.