Could prosecutors indict Steven Cohen?

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The government would appear to be in quite a predicament regarding SAC Capital founder Steven Cohen, who has been in the government's cross hairs for years.

An ideal opportunity to prosecute him for insider trading presented itself in the form of the drug stock trades that generated $276 million for his firm. But the case depends on the cooperation of Mathew Martoma, who was just indicted. My sense is that any negotiations with Martoma becoming a witness have ended, which has prompted the government to play hard ball.

The choice was always between cooperation and leniency on one hand and harsh treatment and a potentially long prison sentence on the other hand. Martoma has apparently decided to take his chances. While the government's insider trading case appears to be weak without Martoma, Reuters raises the possibility that the SEC might go after Cohen on failure to supervise charges, arguing that he should have been a better overseer of trading to prevent illicit activity.

That would be a massive comedown for the government, but it may be the only option. Prosecutors do not want to run the risk being seen as complete failures, after expectations have been pushed so high.

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