As discussed here, Preet Bharara, U.S. Attorney for the the Southern District of New York, has been leading a broad investigation into possible insider trading by hedge funds. In May 2013, Vanity Fair reported that Bharara was "getting closer to the biggest fish of them all"-- SAC Capital's Steve Cohen--and characterized Bharara's pursuit of Cohen in terms of Ahab hunting Moby Dick:

Bharara has yet to fire any legal harpoons Cohen's way, but on Friday the SEC used some smaller ammunition on Cohen when it announced that it had filed charges against Cohen for failing to supervise two senior employees and prevent them from engaging in insider trading. Specifically, the SEC alleges, Cohen received "highly suspicious" information that should have caused him to investigate the basis for trades made by two portfolio managers who reported to him – Mathew Martoma and Michael Steinberg.  Instead, the SEC claims, 

Cohen ignored the red flags and allowed Martoma and Steinberg to execute the trades.  Instead of scrutinizing their conduct, Cohen praised Steinberg for his role in the suspicious trading and rewarded Martoma with a $9 million bonus for his work.  Cohen's hedge funds earned profits and avoided losses of more than $275 million as a result of the illegal trades.

Although SAC has already agreed to pay to pay more than $600 million to settle an SEC lawsuit relating to Martoma's trades, the SEC emphasized that its new administrative proceeding against Cohen would additionally seek to bar Cohen from overseeing investor funds. The SEC stated that "the administrative proceedings will determine what relief is in the public interest against Cohen, including financial penalties, a supervisory and financial services industry bar, and other relief."

Will Bharara and his federal prosecutors strike next? That remains a mystery, and Bharara's office reportedly declined to comment on the SEC charges. Former SEC attorney Jacob Frenkel raised that as a possibility on CNBC's Squawk Box today, however, noting that in the recent Rajat Gupta matter, "the SEC brought an administrative action against Gupta, and within 30 days, the next thing you know, there's a criminal indictment." 

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