FORTUNE -- The conviction of former SAC trader Mathew Martoma on Thursday seemingly puts Steven A. Cohen on the hot seat. But even with a guilty verdict against another one of his underlings -- Martoma makes eight -- Cohen is unlikely to end up behind bars.
Not that Cohen should be celebrating. Preet Bharara, with the Martoma conviction, continues his perfect streak in insider trading cases. Since taking over the U.S. Attorney's Office for the Southern District of New York, Bharara is 79 for 79 on insider trading cases. And only 18 of those were plea deals. The rest were won at trial.
And that all sounds very impressive, until you consider this: Historically, prosecutors have had a near-perfect record getting convictions in insider trading cases. It's hard to think of a case that didn't lead to a conviction. And that's particularly true for the Southern District of New York, where the conviction record for all cases is well over 90%.
If you know anything about insider trading, this seems like a very odd fact. The laws around insider trading are wishy-washy at best. Nearly all legal experts say it is very hard to define what is insider trading and what is not. And traders think so too, but they might not be an especially objective bunch, particularly those who conduct insider trading.
So if the law is unclear, why is it that prosecutors are able to convince juries their interpretation is correct so much of the time? The answer: While there is not a great definition of insider trading, it's pretty clear what type of evidence will put you in jail for insider trading. And prosecutors are very good at knowing when they have that type of evidence and when they do not.
That probably means that Bharara and his pals have done the calculus and have decided that there isn't a winnable criminal case to be made against Cohen, who founded and ran SAC Capital, the multibillion dollar hedge fund that Martoma worked at when he made the trades that got him in trouble. (The Securities and Exchange Commission is still going ahead with a case to bar Cohen from the finance industry. Cohen is already in the process of winding SAC down.) The Martoma conviction is unlikely to change that.
It is possible that Martoma would now agree to testify against Cohen in exchange for a lighter sentence. He faces as much as 45 years behind bars. But that still might not help the case against Cohen. Martoma didn't testify himself, but he and his lawyers did have a lot of experts testify on his behalf to try to prove that what he did was not insider trading. So it will be hard for him to now flip and say, "I was insider trading, I knew it, and I know that Cohen was doing it too." Also, now that Martoma is facing lots of jail time, it will be easy for a defense lawyer to raise doubts about his testimony. He is clearly motivated.
So, either in or out of the finance business, Cohen is likely to remain a free man.
What does all of this mean? One thing for sure: Apparently, our justice system is much better at putting people behind bars for breaking the law trading individual stocks than it is for trading and creating billion-dollar derivative bets that leave millions in foreclosure and our financial system near the brink. Second, even when it comes to individual stock trades, the boss is still safe.
A longstanding anomaly in American law gives federal prosecutors enormous power in deciding whether to punish a large corporation for the actions of even a single employee.
By Roger Parloff, senior editor
FORTUNE -- Hedge fund powerhouse SAC Capital Advisors, indicted Thursday for wire and securities fraud violations after six of its employees pleaded guilty to those charges, appears to have close to no legal defense to the charges it faces.
That's MOREJul 26, 2013 2:08 PM ET
Preet Bharara isn't The Protester. But he still made the latest cover of TIME Magazine (a sister publication to Fortune).
Bharara is the U.S. Attorney for the Southern District of New York, responsible for a series of insider trading convictions that included hedge fund manager Raj Rajaratnam. From the story, written by Massimo Calabresi and Bill Saporito:
One of Bharara's characteristics is his combination of blue-collar, former mob-prosecutor attitude with an unabashed moralist's talk MOREDan Primack - Feb 1, 2012 5:25 PM ET
The U.S. Attorney for the Southern District of New York developed a sense of right and wrong at a very early age. Which is too bad for Raj Rajaratnam and countless others.
By William D. Cohan, contributor
FORTUNE -- When Preet Bharara, the 42-year-old U.S. attorney for the Southern District of New York, was a sophomore at Harvard in 1987, he had a regular gig as a news anchor at the student MOREAug 2, 2011 5:00 AM ET
The government has been accused of using a big insider trading case to mask the fact that it's too weak to take on firms involved in the financial crisis. But today's action against Deutsche Bank shows that US Attorney isn't afraid of Wall Street.
FORTUNE -- Ever since the Raj Rajaratnam trial began, many have wondered why the government is cracking down on insider trading when the public thinks that there MOREKatie Benner - May 3, 2011 12:49 PM ET
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