At Bloomberg News, Matt Levine comments on the settlement between the Securities and Exchange Commission and money manager Leon Cooperman:
It is a little disappointing as a matter of incentives. What if he's totally right? What if he did nothing wrong, and could prove it in court, but would rather pay $5 million in settlement costs than $8 million to lawyers? What incentives does this settlement create for the SEC to go after the next dubious insider trading case?
These are all good questions. I would add one more, which is, how could the system be changed so that the SEC has better incentives not to bring weak cases and so that investors (or their insurance companies) have a stronger incentive to fight rather than settle? One possibility might be something like a provision requiring the government to reimburse the legal fees of people who successfully fight such charges. (There is, or was, something like that for government officials who are investigated by independent counsel but are not convicted of anything.) Another possibility would be clearer legislation from Congress about what investors can or can't do, or, more precisely, whether the SEC is allowed to make up and enforce its own rules on this topic, rules that Congress has not enacted.
People might ask, why should white-collar civil targets get their high-priced private legal talent reimbursed while indigent criminal drug offenders have to make do with public defenders? Fair question. Another response may be that the issue isn't just the legal fees, but the time, risk, stress, and headache of a trial. Another fair point. Maybe cities and states could experiment with this, and the ones that get it right become the most attractive places to do business. By right, I don't mean letting criminals get away with crooked behavior. I do mean, though, not going after people who didn't do anything wrong.