Most of the hedge funds and individuals targeted so far in the government's insider-trading crackdown have something in common, according to Clusterstock.com:  They all have close ties to the gigantic hedge fund SAC Capital and its billionaire founder and head trader, Steve Cohen.  Which suggests Mr. Cohen is the real target of the investigation.

This deduction is based on the understanding that large government investigations normally begin with the "little fish" - investigators grab smaller targets, whom they then use to get a "big or bigger fish."  You can look it up!

In the late 1980s, Dennis Levine and other investment bankers were the "little fish" who were "flipped" into star witnesses for the government against "big fish" like Michael Milken and Ivan Boesky.

The government has already used this strategy to full effect in the Galleon Group investigation of last summer, and it appears to be using it again now.

The "big fish" in the current investigation would seem to be SAC founder Steve Cohen, whose extraordinary trading record--and extraordinary command of information--has raised eyebrows (and hackles) on Wall Street for years.  The "little fish," meanwhile--who, in any other context would be huge fish--are a coterie of traders and former colleagues of Steve Cohen, some of whom remain close confidants of his.

If past is prologue, as this investigation continues, the government will gather as much evidence as it can against the little fish and then use this evidence to try to pressure one or more of them to cooperate. And then, with star witnesses and evidence in hand, the government will go after the big fish.

Continue reading at:  [Clusterstock, 12/13," Targeting the SAC Gang"]