Calendar Is Not Biggest Hurdle in SAC Prosecution The hedge fund titan Steven A. Cohen and his firm, SAC Capital Advisors, have been under the microscope since prosecutors indicted two of the firm's portfolio managers for transactions in 2008 and 2009. But with only a few weeks left until the five-year statute of limitations passes on bringing securities fraud charges for a number of those trades, there has been speculation about whether Mr. Cohen may be off the hook for a possible criminal prosecution. Prosecutors would face any number of hurdles in bringing charges against Mr. Cohen, but the statute of limitations is not a particularly important one. There are ways for prosecutors to charge a violation based on the 2008 trading that would achieve nearly the same result as bringing the case now. Neither Mr. Cohen nor SAC have not been accused of any crimes, and both maintain that they did not engage in any misconduct. Prosecutors charged Mathew Martoma, a former SAC portfolio manager, last November with obtaining inside information about disappointing results from a drug trial that caused the shares of Elan and Wyeth to drop. Right before SAC sold its positions in those companies and then shorted the stocks, Mr. Martoma spoke with Mr. Cohen by phone for 20 minutes. The trading began on July 21, 2008, and took place over the next few days, helping SAC avoid losses and realize gains of approximately $276 million, according to the government. The other case involves Michael Steinberg, a close associate of Mr. Cohen's, who is accused of receiving inside information about negative earnings announcements by Dell and Nvidia from a SAC analyst. The Dell trading took place in late August 2008, while the Nvidia transactions were in early May 2009. The amounts involved were much smaller, totaling $1.4 million. The federal statute of limitations provision states that "no person shall be prosecuted, tried, or punished for any offense, not capital, unless the indictment is found or the information is instituted within five years next after such offense shall have been committed." An insider trading violation occurs when the securities trades were executed, so that is when the clock begins to tick for prosecutors to file charges - absent a waiver by a defendant. One means by which prosecutors can avoid that five-year deadline, however, is to pursue a charge of conspiracy to commit wire fraud. Unlike securities fraud, which was included in the indictments filed against Mr. Martoma and Mr. Steinberg, the limitations period for a conspiracy does not start until the illegal agreement ends, which may be well beyond when any particular violation occurred. Crimes that occurred more than five years ago can be used to prove the existence of the conspiracy so long as they are part of an illicit agreement that included conduct within the limitations period. In order to pursue a case against Mr. Cohen and SAC more than five years after the 2008 transactions, prosecutors would need to show the trades were part of an overarching conspiracy to trade on inside information that extended into more recent trading. That means the government would have to obtain evidence of trading at SAC that fit into the same pattern to prove a single agreement to commit securities fraud, like those by Mr. Steinberg in Nvidia in 2009. DealBook reported that the Federal Bureau of Investigation is looking into more recent trading at SAC, which may signal an effort to build a conspiracy case. Conspiracy is a staple of insider trading cases; both Mr. Martoma and Mr. Steinberg charged with that offense. Prosecutors might also be able to obtain nearly the same punishment for a conspiracy conviction involving insider trading as they could from proving securities fraud. A defendant's profits from the conspiracy can be considered in setting the sentence regardless of whether the trading took place during the limitations period. The general federal conspiracy statute caps the potential prison sentence at five years. But a separate conspiracy provision - added by the Sarbanes-Oxley Act in 2002 - allows for punishment up to the level authorized by the corresponding statute that the person conspired to violate when the crime involves fraud. Among the offenses that can used as an insider trading charge is wire fraud, which can result in a prison sentence of up to 20 years. A conviction for conspiracy to commit wire fraud would allow for a punishment that would roughly correspond to what could be imposed by proving securities fraud based on the actual transactions. Thus, the passing of the limitations period for the 2008 trades at SAC would not put the Justice Department in a significantly worse position in a future conspiracy prosecution or limit the sentencing of anyone convicted. The greater hurdle would be putting together evidence to show that Mr. Cohen was a member of a conspiracy that continued beyond the trading in 2008. Conspiracies come in different forms, and one is called the hub-and-spoke conspiracy. This type of agreement involves a single person - the hub - who deals separately with different individuals engaging in misconduct - the spokes. The issue in this situation is whether there was a single conspiracy or a number of discrete individual agreements. If prosecutors could not show a single overarching plan to engage in misconduct at SAC, then each agreement would have to be charged separately. If the Justice Department decides to pursue a conspiracy charge against Mr. Cohen and SAC that extends beyond the 2008 trading, it would need evidence that any illegal transactions were not just isolated opportunities but instead part of a broader plan. At this point, evidence to establish that type of agreement appears to be lacking, even if insider trading charges can be proved against the SAC portfolio managers. The fact that Mr. Martoma spoke with Mr. Cohen before the Elan and Wyeth trades is suspicious but does not show an agreement. And Mr. Cohen's close relationship with Mr. Steinberg would not be sufficient in itself to prove they were part of an illicit arrangement. Conspiracy is a powerful tool that lets prosecutors pull together disparate events, including those that fall outside the statute of limitations, to show they were manifestations of a larger criminal enterprise. Courts are willing to allow for broad use of the charge because, as the Supreme Court once noted, "collective criminal agreement - partnership in crime - presents a greater potential threat to the public than individual delicts." Even with a favorable interpretation of the crime, however, proving a conspiracy is difficult when the government does not have a cooperating witness to testify about the nature of the agreement and the involvement of others in the criminal enterprise. That appears to be lacking at this point as both Mr. Martoma and Mr. Steinberg continue to fight the government's insider trading charges. The passing of the statute of limitations on the 2008 trades at SAC is unlikely to cause prosecutors too much consternation. But getting the information that could show a continuing conspiracy to trade on inside information will be crucial if prosecutors hope to pursue a case against Mr. Cohen at some point.