The hedge fund SAC Capital Advisors recently agreed to pay $1.8 billion in fines to settle charges that it engaged in insider trading. Meanwhile its namesake, founder, sole owner and CEO, Steven A. Cohen, has escaped prosecution altogether. Some have expressed outrage at this result, saying that SAC must be innocent if Cohen is innocent. The argument should in fact go the other way: If SAC is guilty, there is a sense in which Cohen is guilty too.
There are, more specifically, two errors in the argument that SAC is a criminal entity only if its leader is himself a criminal.
First, the argument confuses legal innocence with factual innocence. Just because the Department of Justice chose not to prosecute Cohen does not mean that he didn’t participate in the crime or commit other, related acts that warrant criminal liability.
The Justice Department has a tremendous amount of discretion in deciding which crimes and criminals it wants to target, and there are scores of reasons why it might have chosen not to target Cohen. For one thing, the intricacies of an insider trading case make it a less than compelling tale for a jury. And the department, already facing outrage for its failure to punish Wall Street executives in the wake of the financial meltdown, might well want to avoid a high-visibility prosecution that ends in Cohen's acquittal. There also may be political calculations or considerations that render a Cohen prosecution untenable. None of this establishes, however, that Cohen isn’t actually guilty.
This brings us to a second error: the faulty belief that you need to have participated directly in a crime to be criminally liable. This may be true when it comes to crimes on the street, but not when it comes to crimes in the suite.
In my scholarly work, I often argue that a high-level corporate executive deserves blame and sanction—and sometimes even criminal liability—when his corporation commits a crime, even if he neither participated in nor culpably failed to prevent that crime. The argument turns on a philosophical account of shared responsibility, but we don’t even need to use moral philosophy to justify CEO prosecutions in these cases. Instead, just look at executive bonuses and the circumstances of their conferral.
You would think a CEO receives a bonus where, and only where, he has discernibly contributed to his company’s success. However, it is actually notoriously difficult to identify whether a firm’s improved performance has anything to do with the executive’s actions. It is partly for this reason that most CEOs get bonuses just so long as the corporation does well, and without regard for the executive’s direct role in bringing about that success.
Yet there is also a principled reason for this distribution of bonuses. The CEO has an obligation to view his welfare and that of the corporation as intertwined—the fates of both should rise and fall together. Awarding the executive a bonus when the corporation succeeds honors that obligation, and rewards its fulfillment.
So too when things go wrong—the CEO deserves to bear responsibility for the corporation’s acts. Just as a bonus is about more than a CEO’s individual contribution to success or failure, blame is about more than his individual laudable or reproachable corporate conduct. The wrongdoing, his or not, still happened on his watch as leader.
It follows then, in the case of SAC, that Cohen is an appropriate object of reproach, and perhaps also prosecution, for the very reason that he helmed an entity that committed crimes. Has the Justice Department made a mistake in failing to prosecute him? We cannot know the reasons behind its restraint. But even if Cohen never sees the inside of a prison cell, or a courtroom for that matter, we should not therefore believe him innocent. There are good reasons to think he is not.
Amy Sepinwall is an assistant professor of legal studies and business ethics at the Wharton School of the University of Pennsylvania.