U.S. investigators looking into SAC Capital chief Steven Cohen are trying to figure out if he had plausible deniability, now referred to by officials as “willful blindness.” In other words, did he choose not to know about the alleged criminal activities that investigators say were going on at his firm? The Wall Street Journal’s Michael Rothfeld and Jenny Strasburg report that this is being considered by investigators as a possible strategy for Cohen in running his firm.

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The term “plausible deniability” came into use during the Kennedy administration, and it was used to describe the withholding of certain information from top officials as a form of protection if details about an illegal or unpopular government operation became public. So did Cohen purposely overlook the wrongdoings of his employees?

Update On The SAC Capital Investigation

Several executives at SAC Capital have been subpoenaed by the government so far this year as investigators consider just how high up the ladder the chain of alleged corruption might have gone. Accusations of insider trading have embroiled more than one employee at the firm over the last year. At this point though, few SAC employees have been charged with any crime. Cohen himself has not been accused or charged.

Rothfeld and Strasburg give an example of the willful blindness strategy. For example, drug couriers often take steps to avoid finding out what they are carrying. Lawyers told the WSJ that this type of strategy widens the field for prosecutors who are trying to prove that someone committed a crime. They said it provides “a lower threshold” when it comes to the burden of proof.

SAC Capital’s Structure

According to the WSJ, SAC Capital is structured in a different manner than most other hedge funds. Many of the ideas used in the firm’s trading strategies are generated at the lower level and then gradually brought upward toward Cohen after being filtered by each layer of executives. The structure provides several layers of potential protection between Cohen and the trading ideas that are being generated at his firm.

Sources told the WSJ that this structure has been a focal point for investigators for 10 years or so. Lawyers with the Securities and Exchange Commission have been growing concerned that the firm was the embodiment of growing concerns about regulation. Sources said that a task force at the SEC was formed to examine how SAC and other hedge fund firms handle their trades, including details on the flow of documents and any payments which are provided for tips about trading. At that time, no enforcement actions were leveled at SAC.

Investigators On A Time Clock For Filing Charges Against Cohen

Investigators filed charges against former SAC trader Mathew Martoma late last year, and he’s scheduled to go on trial in November. The firm has said it would pay $602 million to settle in connection with the questionable trades made by Martoma. Sources reportedly told the WSJ that that the FBI tried to flip Martoma as a witness in 2011.

Now the clock for filing more insider trading charges in connection with the trades Martoma made is ticking. The deadline is five years, and that ends the week of July 21. However, there are some possible ways for prosecutors to file charges later, depending on how they make their case.