From Bernie Madoff to Steven Cohen, Enabling Suspiciously High Returns – ProPublica
Many institutional investors have so perfected the art of looking the other way that they make bystanders on a New York City subway platform look like models of social responsibility.
The operating standard is to allow fund managers — or affiliated businesses or employees — to go as far as they can until the moment they are caught doing something wrong. Through their actions, Citigroup, Blackstone and the others are sending a message that they will forgive rotten ethics for great returns.
This is a long-standing Wall Street custom. Citigroup and JPMorgan played handmaiden to help Enron commit fraud, according to the Securities and Exchange Commission. The two banks didn’t admit or deny guilt in settling with the regulator.
There is a point where willful blindness turns to complicity. Investors profit from any added juice that SAC might gain, whatever its source. And if Mr. Cohen were to face charges, they would pay no price.
Major banks and investors around the world shoveled money to Bernard L. Madoff despite doubts about his purity. Some thought that Mr. Madoff was using his brokerage firm to front-run. In other words, they thought he was cheating on their behalf, not ripping them off. And that was an enticement.
The arrests and bad trades are finally hitting close to SAC, but there is nothing new about the questions surrounding Mr. Cohen’s business. He was always one of the most aggressive traders on Wall Street. Speculation that he may have tapped into legally dubious information wasn’t just whispered in private but splashed across the pages of The Wall Street Journal in a 2006 profile that raised questions about whether his firm traded improperly.