in the 1950s detroit was one of the largest cities in america with one of the highest per capita incomes in the nation but the motor city suffered decades of decay and urban blight and today it's gone bankrupt. a special edition of "street signs," live from detroit starts now. >> welcome to "street signs," everybody. i'm brian sullivan in detroit. mandy is back at cnbc hq, and we're live for you all day here in the motor city. not the reason we want to be here. as you heard, detroit filing for

the largest municipal bankruptcy in u.s. history listing billions in debts and unfounded liabilities. it's now in the hands of the court and where it ends up there it's anybody's guess because the situation is far from clear. earlier today a judge said this is unconstitutional under the michigan state constitution. it will likely fall in a federal judge's hands. it's now up to the lawyers and people of detroit, the mayor and emergency council to try to get this sorted out. all hour long guests and insights from detroit and you've got to see it to believe it. >> let's not forget that detroit's bankruptcy has been decades in the making so let's take a look at the recent events that have led to what we're seeing right now. november of 2011, the mayor of detroit announces that the city could run out of cash by april. then we fast forward to march of

2012, mood esdowngraded and detroit has a $327 million deficit. the governor declares detroit is in a financial emergency. they appoint kevyn orr as emergency manager and between april and june he tries to plan a fiscal restructuring and by last night he says the best way to save droid is by filing bankruptcy protection. let's find out what happens from here. over to you, brian. i usually late flight delays but we were delayed getting here last night. gave me a chance to read back through the emergency management report talking about all the numbers and listing all the stuff you talked about. so many numbers and some of the numbers really stick out, look oat this, folks. $18 billion and $20 billion in liblds and obligations, a deficit as mandy mentioned. that number is in dispute.

131 million in uncollected taxes. in that druptsy filing, which was 3,000 pages long, there were more than 100,000 creditors listed to the city of detroit and there's as many as 70,000 if not more completely abandoned structures. now, we're here downtown, but we wanted to see the real story for ourselves. earlier today we went out to brightmore, probably the hardest hit section and hung out with bill pulte iv, he's tearing down homes and trying to build the neighborhoods back up and give them back to the people. we tried to see for yourself and here you see for yourself. >> this is not a process of tear down. this is how you found the home. this is the condition of the home in the bright mr section of detroit. >> tens of thousands of sections all over detroit. don't even call them homes anymore.

>> it's essentially collapsed. >> that's right, that's right. >> this will come down if we're able to get the funding for it and what we're doing is focusing on the debris, found a dead body within the perimeter, non-structural blight. in this neighborhood and get a shot, working to clear it out. you found a dead body. >> yeah, we did, our contractors did. >> completely untended. >> our contractors found it and found a lot of interesting things in here. if we come in and clean this up it can become a viable neighborhood. there is a house that you can see. these are the homes that existed this way. >> they are watching our equipment at night to make sure they don't break into it. we don't have concerns anymore because of all the hustle and

bustle and land clearing it removes the ability for criminal activity to occur. >> hey, you're a rich guy, grandfather built pulte homes. they don't give a damn and they are making a material impact. getting a paycheck and also having people coming up to us crying and thanking us for what's going on. >> these types of homes like this, can you see there's all types of stuff. >> there's glass and junk and all i can say on television in here ripe for crime. overgrown forests, crime rate. this breeds criminal activity and the whole activity. nobody -- no cars were going through. now it's like i-75. everybody coming through here. got to greet a viable community. bad activity. >> when you guys are done, being finished and cleared out. that's totally up to the

community and i'm partnering with mitch albom and the community will have to decide. we don't care in another interview. that's step two, three and four. right now we're focused on step one which is stabilizing this neighborhood. >> why do this? >> why not do this? >> we built the largest home builder in the united states this. comes with detroit. detroit can come back but, first, we've got to clean it up and got to do it with the production rate and mindset. that's the only way we'll fix this. >> got your work cut out for you. >> worse than i imagined it would be. >> we get that a lot but the reality is there's over 7,000 structures. >> we'll talk more about that in a few minutes. i want to bring in the president of the detroit afl-cio. chris, thank you very much. it's a dark day: you guys are

doing your best to fight it. >> i want to talk a little bit about how we go the here. feel a little betrayed by governor snider. first he said if he sign on to the consent deal we'll avoid having an emergency manager. we made concessions and got the emergency manager and said if we take more concessions and more cuts, we make more sacrificed we can avoid bankruptcy and here we are. the workers of the city of detroit have made so many sacrifices and courts and our actions will depend on what happens. >> one of the stories that's come out in the past 24 hours is there was an expected delay and then all of a sudden the files got done in literally the last five minutes and i've red some commentary. >> you're absolutely right about

that. the governor's people and the emergency management people they were making appointments to talk about more concessions and cuts and scheduling more meetings in the future and at the same time preparing for the bankruptcy filing. we feel very hurt and betrayed by the governor and emergency manager kevyn orr. this is a very sad day for detroit. the numbers are so gig big and staggering in terms of the obligations, how much more do people need to give up to get anything, to get detroit back to where it needs to be? it's staggering the amount of debt. >> we've made massive, massive cuts and proposed to give more cuts and i give our unions credit for, they found ways to cut for the workers and found new revenue sources and we came to an agreement that could have put us on a path to solvency.

we came to a deal with the city, thought we had a deal with them and they haven't enforce that had agreement so we don't know what the city is thinking. i mean, i think when you appoint a bankruptcy attorney as an emergency manager, i think that shows the direction you want to go from the get-go. >> under chapter 9, i don't want to get into the weeds. if bankruptcy is approved and makes it through that period of review about whether or not the cases have standing regardless, it gives the emergency manager the governor, the plan a lot of power to essentially negate collective bargaining agreements. >> that's right. >> so what do you guys do? what's the next step for the afl-cio? >> you know, we've got to talk to our members and mobilize them. we need to make the public aware of what sacrifices our unions have already made. city workers here have cut to the bone. times are really hard in detroit. they are hard for our families, and -- and we need to educated the public and make them aware of the fact that we've done our part. we've sacrificed so much to keep this city afloat.

>> thank you very much. we appreciate the time. >> breaking news, mandy. back to you. >> absolutely. breaking news coming into cnbc right now. tyler, i'm going to throw it over to you at desk. >> mandy, thank you very much. the u.s. securities and exchange commission has charged s.a.c. capital's founder and prime guy, steven a. cohen in that insider trading case. he's been charged with failure to supervise two traders whom the s.e.c. and justice department have charged with insider trading. this is not a justice department criminal filing. we should be very clear in saying. it is the s.e.c. that has charged mr. cohen for failing to prevent insider trading. let me read from one of the s.a.c. paragraphs. cohen received highly suspicious information that should have caused any reasonable hedge fund manager in cohen's position to take prompt action to determine

whether employees under his supervision were encaged in unlawful conduct and prevent violations of the federal securities laws. instead faced with red flags of potentially unlawful conduct by employees, cohen allowed them to make the recommended trade and stood by while the managers traded in the portfolios they managed. >> he then later praised those managers for the work and rewarded the other with a $9 million bonus. the s.e.c. as part of this administrative action is seeking to bar cohen from overseeing outside investor funds. that would mean that he could only manage his own personal cash or presumably family cash and would have to unwind all management of money from outside investors. once again then stephen cohen has been charged in an s.e.c. civil case with failure to supervise in connection with two insider trading incidents.

>> back to you, guys. >> thank you very much for the breaking news, tyler. more on this coming up next on "street signs" and also some high profile misses building on yesterday's highs. more on the markets and then it's back out to detroit where brian is live on the ground. find owes what's next for the motor city because our very special edition of "street signs" will be right back. [ male announcer ] at his current pace, bob will retire when he's 153, which would be fine if bob were a vampire. but he's not. ♪ he's an architect with two kids and a mortgage. luckily, he found someone who gave him a fresh perspective on his portfolio. and with some planning and effort, hopefully bob can retire at a more appropriate age. it's not rocket science. it's just common sense. from td ameritrade.

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let's get straight back to tyler at the breaking news desk. believe you've got more on this s.e.c. story. >> that's exactly right as we reported a moments ago the securities and exchange commission has charged steven a. cohen of s.a.c. capital with failure to supervise in connection with insider trading. the case has no merit. steve cohen will fight these charges vigorously. as part of this charge that the s.a.c. has just released within the last few minutes, he -- has seeking to bar mr. cohen, as we mentioned, from overseeing investor funds. that would effectively unwind him as a hedge fund operator except as regards his own

personal money or that of his family members. again, the s.a.c.'s administrative proceeding says it has no merit and mr. cohen will fight is vigorously. >> they want to fight the charge. >> what's the next step, tyler? >> presumably the lawyers will begin talking a great deal and this will go to some sort of administrative proceeding or into court at which time they will both present their cases and in a court of law or an administrative judge will decide what penalties there will be, whether there will be a ban of mr. cohen, but this is now in the hands obviously of the legal teams. mr. cohen on the one hand, of course, as you remember, mr. cohen rather famously said a month or so ago that he was going to stop cooperating with any investigations associated with these insider trading charges, with the justice department, with the s.e.c. and now i guess you could say we

know why. >> and with all of these things there's only one guaranteed winner. thanks very much, tyler. we'll continue to cover this big story here on cnbc. we'll be covering it on "street signs" and "closing bell" as well. let's take a look at the markets because in the meantime the nasdaq has really lost its gains for the week with the losses that we're seeing today and that's, of course, no thanks whatsoever to both microsoft and google, two high flying tech stocks which are disappointed with their earnings that came out yesterday. however, the dow and s&p are still on track for their fourth straight weekly gain. of course, just hugging the flat line right now, and were it not for microsoft and ibm, the dow would actually be quite a bit higher than where it is right now for the day. let's find out more about what's going on in the markets. i want to get straight down to bob pisani at the nyse. bob, end of a very busy week and very busy earnings week. what are traders saying about where we go from here? >> if you go long the market, you'll be very happy that ge and ingersoll-rand came out with

their earnings, ge a major factor in why the dow didn't down nearly as much here. here's the dow industrials, just down fractionally. ge, ingersoll-rand, honeywell, all had decent numbers and more importantly basically promised things would be better in the second half of the year. here's where we are the with the earnings so far. only up 3% on earnings. still better than you might expect. revenues still down 1%. here's my take, mandy. overall what we've got here, not so great. the fed is not the great big tailwind that it's been in the past here. markets are a little stretched. i think valuation-wise, and we need better u.s. global and economic data. not getting it. why are the markets holding up so well, because they are promising things would be better. did you see what honeywell did? take a look here at what everybody else is saying, what whirlpool said, for example. the important thing is they promised the second half of the year it's going to be better. they raised their outlook and said north american volumes would be better than expected. mr. immelt over at began

electric said the second half of the year will be better. it's the old story. we're buying on the second half promised and that's what's holding the markets up. mandy, back to you. >> thanks so much, bob. joining us now we a paul hickey and chris paulon. paul, as always, you've come armed with really interesting and fantastic stats and say the current bull market now ranks fifth on the all-time high list of the strongest bull markets out there. my question though is we seem to be losing a little bit of steam today after we hit those record highs. we are about as high as we're going to get short to medium term? >> i don't know. i mean, if this is -- if this stalling is the best the bears can muster, i mean, i don't know what -- it's not looking very good for them. last night in after hours after the weak earnings reports it looked like it was going to be a very poor day today, but the s&p up fractionally and the dow pretty much flat, and google is up off its lows intraday and so

i think investors are gravitating towards stocks, any stock that's showing any sort of growth or has some sort of growth. investors will be willing to buy on weakness whereas the stock like microsoft which just, you know, seemingly disappoints quarter after quarter, you're not going to see much lift on weakness in a name like that. >> i like that. is this the best you can throw at us bears? not much of a case, is there a bear case at this stage of the game, or is it bulls all ahead? >> well, i thought since may, mandy, that we have entered a trade range in the market that might last the rest of this year. i think the data on the economy is going to stay strong enough to prevent the market from falling very much, but we're going to deal with some digestive problems here. we've got to digest the big move we've had and got to have rising bond yields which i don't think is going up yet and got to suggest fed tapering. i wouldn't be surprise federal we see both of those before the year is out yet. i really think the next six

months is about one thing. that is debunking the fed myth that this whole thing the economy and the stock market is just a big sugar high. we're going to find out as the fed backs away, if this doesn't fall in on itself but it will build even greater confidence that the recovery in the stock market can stand on its own two feet going into 2014 we might have a bigger leg up but i think it will take the next several months sort of marking some time before we get to that point. >> the day of reckoning will come at some point. i want to ask you a question. are you concerned at all about the low volume because the naysayers say the fact that there's been low volume throughout the rally does not, therefore, legitimize the ral? do you agree or disagree? >> i couldn't disagree more. that's been the argument throughout this entire bull market that this volume has been weak and then the gains sort of, therefore, don't count, but if you -- if you are able to isolate the market on days where we had below average volume during this bull market, we'd be

up 300% off the lows, and if you were in the market on above average volume days, you'd be down about 35%, so, you know, there's always worries out there, but i don't think you should be worrying about volume here. there's a lot of structural things which have caused volume to fall and just people aren't as active as they once used to be so i would not worry about low volumes. >> okay, paul, jim, thank you very much. thanks for your check of what's going on in the markets, and, of course, we have much, much here on "street signs" and the steve cohen news. we'll bring you latest, and then we'll go out live to my cohost live on the ground in detroit, once a huge symbol of america's industrial might and now it's a heart wrenching story as it's filed for bankruptcy. we'll talk about what's next coming up on the show. the most, customizable charts, powerful screening tools, and guaranteed 1-second trades. and at the center of it all is a surprisingly low price -- just $7.95.

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we're seeing two men that have climbed the borrow better banking sign gentlemen please get down from the state farm borrow better banking sign. phil get the hose. okay he's getting the hose. alright, let's go. [ male announcer ] talk to a state farm agent about car loans that can save you hundreds. that's borrowing better. welcome back to "street signs," everybody. i'm brian sullivan live in detroit. what a breaking news day we've had. in fact, two events that people speculated might happen but actually did happen. number one, the detroit bankruptcy, the biggest in the history of america which is why we're here and you heard the news moments ago, s.a.c. capital stevie cohen and a lot of speculation about that. now the news is out.

so quite a friday in the summertime. who said summer fridays are slow? i will certainly never say that again. we're in detroit for a specific reason. you just heard from the afl-cio. you've heard some of the stats and seen some of the pictures. rod malone set business editor for channel 4 here in detroit and a guy that covers detroit news every single day for nbc, rod, thank you very much for joining us. >> glad to be here. >> in your mind covering the city for at long as you had, what's the root cause of this problem? is there one? is there many in. >> there are many. it's been 60 years generally but frankly general motors headquarters across the street, the city of detroit is build on the old general motors business model, benefit pensions, lifetime health care and feather bedded jobs that had union backing and management signing off on contracts to have union peace. general motors went fins up five years ago, four years ago, on that business model. why anybody would think that a city similarly constructed wouldn't wasn't thinking straight? >> some people might suggest though that maybe unions, the deals, the contracts are going to be made out to be scapegoats,

that they are not the root cause, that the fact that the population is dropped by half, the tax base has tumbled, few people are paying taxes, if anything at all they are abandoning homes, that that's the real problem. >> well, by 2017, 65% of every dollar that the city was going to spend was going to go to legacy costs. that's -- there's your answer. >> no money left. >> there's nothing you can do. >> or even keep streetlights on, 40% of all streetlights don't work and 30% of the ambulances are running. >> you wait an hour if you're lucky to get a cop. if there's violence in your neighborhood, you might get a cop. if it's a break-in they probably don't even come. the ambulance, if you call and have a medical emergency may break down on the way to your house and may never get to you. that is the way the city has lived and it's not been like a couple of weeks of this, it's been ten years of this kind of thing. the city of detroit, somerset collection is the big mall here in town. people are paying somerset collection prices for dollar store merchandise because the city is maxed out on its tax

cap. in other words, people who live here pay the highest taxes in the state and get the absolute worst service. it's the world turned upside down. >> how do you stop that, and how do you turn it around? >> chapter 9. >> is that going to stop it, going to wipe away certain debts and also crush a lot of people who were expecting a pension. >> it's sad. >> maybe 20 cents to the dollar. making $12 una month on your pension and now you'll make 300, 200 a month. >> they are -- >> how do people live on that? >> they can't, they can't, and the city made promises it couldn't keep, and it started making the promises 50 and 60 years ago when the city had 2 million people. 680,000 people in the city now and when you consider that the average home price is $7,000, how do you get tax base off of that and in the city of detroit less than half the people even paid their taxes. >> something like one tax inspector for every 15,000 homes where in most cities it's 1 for every 4,000. >> they don't even have a licensed appraiser in the city, can't even find one. >> thanks so much.

real pleasure. wish it was on a better cause and better day. mandy, those stats really stick out, right, 58 minutes, the average response time for a police car, 11 minutes is the national average. there's one precinct, precinct 8, i looked it up last night, 115 minutes. nearly two-hour wait for a police car, and it's not because the police are bad, it's because as the city notes the cars -- there's so many calls, so few cops and the cars are so old, they might break down on the way to the crime. >> yeah. it's unbelievable. i've just been reading through some of the stats, it's kind of like you can't believe it's happening, almost like out of a fiction book, right, reading some of the population stat. the population has fallen by roughly half in the past 50 years, down 25% in the past decade alone. no wonder this is a city that has had such difficulty with its fiscal situation. you've got people living in droves. that's people who are taking their tax paying ability with them. there are so many things that you could really pluck out of

this that are really very hart wrench i wrenching. >> the scenes of that house will shake me up, knew things were tough in detroit, didn't know how tough they were. one house, literal getting choked up, one of the houses we were at with bill pulte, there was a kid's stuffed animal on the ground. this should not happen in america. it's a disgrace. >> it should not happen in america. really shouldn't. >> and i know you'll be talking more about the muni bond impact. in fact, we're going to go for a very quick break and we'll talk a lot more about all facets of the detroit bankruptcy situation. where do we go from here and who is going to be impacted? if you're a muney bond holder what does it mean for you. we'll look at it from all sides. do not go away. very special edition and lots of breaking news happening this friday afternoon on "street signs." stay with us. i want to make things more secure.

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one of the other big stories around the detroit bankrupts set potential impact on municipal bonds, real the life blood of many counties, cities and low calls around the country that need money to operate and don't have the cash flow.

is than isolated incident in the muni bond market, or will have this a ripple effect around the country? >> the market is looking at this as an isolated incident, and, you know, watching your coverage you are standing in a place that really looks like no other place in the country right now. certainly something that's been a long time coming and not seeing too much of an effect in the market right now. >> which is interesting because lost in the detroit news is chicago got a three-notch downgrade, another midwestern state that's struggling a by the with a state that's also struggling. >> i think it's really important right now to make the distinction between a city like chicago and a city like detroit. chicago is still a thriving community that has businesses and a population. you talked about the statistics on the decline in population that's occurred over the last

ten years and decades. that's not the same situation in chicago. >> unemployment rate 6.3% and now 19%. absolutely incredible. if this case goes through, still a lot of ifs, if it goes through and if the muni bondholders do take a hair cut, right, some people say they should, if they end up taking one, what's going to happen? >> well, one of the things that is critical to me in this process is not so much the hair cut but it's does the judge uphold where general obligation bonds stand in the obligations that the city has? up until now general obligations have been the head of obligations ahead of paying policeman, trish, firemen. will that be upheld.

my suspicion is a judge will look back at previous cases, new york city in 1975, what the state of rhode island did with central falls, rhode island and then uphold that. look, if there is no money to pay those bonds, then you will see some sort of restructuring. bear in mind you have a lot of these bonds that are insured. those bonds will keep paying interest when it's due and principal when that comes due. >> yeah, it's going to be a precedent setting case. either way. >> detroit is a huge story and another big story and it's broken here on our show. it's steven cohen and the s.a.c. and andrew ross sorkin is now on the cnbc "newsline" what. are you new hearing on this centorbi? >> reporter: good afternoon, mandy. what everybody is now talking about, it's clear that the s.e.c. has instant messages back

and forth between steve cohen and many of his associates at s.a.c. and conversations about frank frankly whether or not there was inside information and whether he should have looked into it or not. conversations about how close he is, not just to the action and specific people. there's a debate going on between analysts at s.a.c. and martoma and steve colen. it demonstrates this is not a criminal says. but the s.a.c. case. most lawyers who have seen it so far think it's a strong case because whether there's issues of supervising others and questions of insider trading, doesn't appear he looked into it strongly enough and may have looked the other way. that doesn't make it a kiam from a criminal perspective but on a

civil basis could make for a very strong case. >> you've got the civil charges, right. not a have charge and they might get his money and he's not going to get jail time is he? >> he is not. i think we should make that clear, however. the idea he wouldn't be able to manage a fund, what that ultimately means, does that mean he can't manage his own money or operate a fund on his own? how does that work so there's going to be a number of issues as this story unfolds. >> andrew ross sorkin, thanks very much for bringing us what you know on that. david faber is following this story as well. david, give us your side of the story. >> interesting to here andrew and in speaking to people close to s.a.c., i think if the s.a.c.

is successful in this with still charges, it doesn't have the power to stop him from managing his own money. of course, his own money, for you or me it might not be that much but for this gentleman it's $9 billion or more so much of s.a.c., again, if the s.a.c. is even successful in getting the convicti conviction, much of s.a.c. would still be intact. 1,000 people there now. clearly he wouldn't need as many people to run his own money but he would certainly have a large staff, one would assume and interestingly as a family office my understanding is he'd no longer have to be registered with the s.a.c., kind of would be a funny outcome, but, again, i don't think they have the

power to prevent him from managing his own. >> managing mr. cohen's money, which, by the way, may be the outcome regardless given the outflows that s.a.c. has and that most likely will condition. it largely will be mr. cohen's money left in the fund and that of the other employees at s.a.c. so that's at least one take away i can share with you. certainly can't share much on the insights and legally and if there's anything to come on the criminal front, particularly after hearing preet bharara at our own delivering alpha conference a few days ago. >> the information provided to me is that cohen owns 1,600 stocks and everybody is trying to work out what happens to some of those stocks in which he has

large positions. do you have any information on that? ? >> well, again, because i think so much of the fund is his own money he would not be a forced seller of those stocks. the only thing you would be forced to sell would be to fund redemptions, always a time line on some significant lag. you know, our own kate kelly has been following that part of the story more closely and there's more time and it's unclear whether we could take shots at the portfolio, where people fund the stocks they know they are short in. such a large percentage of the stocks are already mr. cohen's, won't be a forced seller of that stuff. only request for redemptions that would come in from outside investors so i don't know if there's that much play.

understood. we'll try to get more on what's happening with this story. just to quickly recap the s.e.c. is charging steven cohen with civil charges, not criminal charges. we'll continue to follow this story for you right here on "street signs." do not go away. time to have new experiences with a familiar keyboard. to update our status without opening an app. to have all our messages in one place. to browse... and share... faster than ever. ♪ it's time to do everything better than before. the new blackberry q10. it's time.

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the markets are not moving terribly much, but there's a lot moving in terms of breaking news here on "street signs." let me bring you quickly up to date over what we've learned over the past 20 minutes or so. the s.e.c., the securities and exchange commission, has announced charges against hedge fund adviser steven cohone for failing to supervise two employees and prevent insider trading under his watch. at this stage these are civil charges, not criminal, and let's get more on where we go from here and bring in a cnbc contributor and "vanity fair" contributing editor. great to have you with us. i want to ask you is it possible that we could see, for example, still criminal charges against

the firm even though we're seeing civil charges against cohen himself right now? >> something strange here but a lot of strange things and it's rare for the s.e.c. to file civil charges if the justice department is going to file criminal krrnlgs. rare for the s.e.c. to file first. that saided charges brought are fairly limited, about two specific trades, against cohen specifically and not firm and i've been hearing something about the firm coming criminally, so it's sort of out of order in terms of how you see these things proceed. and there's been a rivalry between the s.e.c. and justice department.

>> perhaps you guys have been talking about, delivering alpha might have put some pressure on things. and perhaps they didn't want to give s.a.c. a big chance to respond either before and let the news sink in over the weekend, but i'm not sure what else would have appropriate tate it had like this. >> another cnbc contributor sitting down. ron insana. thanks for running in and i'd like to get your take. it's rare that you don't see the s.a.c. and the justice department and u.s. attorney's office working in tandem on cases where they have both criminal and civil complaints and she's right, fairly narrow in scope, failing to supervise 2 out of 145 analysts when these two situations arose. not wear to see these things on a friday afternoon. there are a lot of these types of settlement announcements that

come after the close on purpose. partly to the extent that some would fear this rattles the market. one reason to hold it and in 1986 when there was a very large settlement undertaken, largest to date with the s.a.c., they did it after the close on a friday afternoon. i'm not comparing the two cases, what is interesting is that, you know, there is -- in this instance they are trying to bar him from managing other people's funds and then complaining that he failed to supervise 2 out of 125 portfolio managers. i don't know whether they are alleging that this is more conspiratorial, a more systematic problem within the firm, hard to make that case with two people, from the time i was there, only five and a half months, general counsel and the head of compliance schooled me quite a bit in the scriptures of compliance activity at the s.a.c. >> more on this in just a

second. in terms of the response and the statement from s.a.c. that we've heard so far, they are going to fight this vigorously, 20 days to respond or steve cohen has 20 days to respond so what do you think he's going to say and where do we go from here? >> they have been fighting vigorously all along and they waged the campaign at times in the press and it's interesting. normally the government is the 100-pound gorilla in the room and because cohen has so much money and is determined to fight and wants to keep managing outside funds which is kind of a separate conversation, but he's kind of an 800-pound gorilla, really interesting that somebody with the firepower will fight the u.s. government and i think it will be quite a battle: when s.a.c. makes a big beal about how strong their compliance are and look at the e-mails surrounding the charges it does make you wonder and what some people have allege and compliance in name rather than in actuality. when you look at some of the

e-mails, why on earth didn't this raise red flags at the s.a.c. compliance department if the compliance department is so good and the only answer i've gotten it was 2008 and that was a different time than today but that's not really a satisfying answer. >> and not in practice. bethany mclean, thank you for your comments, and, ron insana, stick around. we'll continue to cover the breaking news story on s.a.c. and steven cohen. you're watching "street signs." in today's markets,

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♪ you are watching "street signs" on cnbc, and this is very far from a sleepy friday afternoon. let me bring you up to date on the headlines. s.e.c. charging steven cohen for failing to supervise traders. i have ron insana here sitting with me. i'm wondering to what degree there's some commentary out there as to whether or not they're making cohen kind of like a post perboy.

>> and i believe there's a belief within s.a.c. and steve's mind himself he's being singled out relative to the entire field of hedge fund managers on these particular issues. when you look at global macro traders who years gone by have been freed to trade insider information in currency markets without prosecutorial -- >> sure. >> -- aggressiveness, let me say, then some people feel that they're being unfairly targeted. and the question is, you know, is he the poster boy for the hedge fund industry? i mean, i can safely say we've had this conversation. look, he's wildly successful. he started in 1992 with $25 million. he's now worth $9 billion or $10 billion, depending on whose numbers you believe. he has a rather large art collection. he has what many people would consider -- and i've said this to steve himself -- an extravagant house. is he a sign of, to the government anyway, or a symbol of what appears to be wrong with the hedge fund industry? and i think there are people who would believe that that might be one of the reasons he's being

selected over maybe some of the others, although having said that, others have already been, you know, prosecuted and tried. >> absolutely. on that point, let abring in harvey peter, former chairman of the s.e.c. mr. pitt, do you think there's any merit -- >> legitimate effort on the part of the s.e.c. to hold hedge fund managers accountable for the conduct of their traders and portfolio managers. >> in terms of those portfolio managers, the two that are in question, i believe that both of the cases are still open. so what happens if they're found not guilty? >> well, if he's found not guilty, that will potentially weaken the s.e.c.'s case, but it

won't eviscerate it. the reason for that is they may not have proved his guilt beyond a reasonable doubt, whereas in an administrative proceeding, it's only a preponderance of the evidence. >> harvey, if i may interrupt, it's ron insana, in respect to the open cases, and what we read about martoma, how does the s.e.c. launch a complaint against a supervisor when, in fact, there's been no proof of wrongdoing among the portfolio managers, as mandy asked in question, what's the procedural effort here as those trials go on? how do they press steve to stop managing other people's money when those other trials haven't been concluded? >> well, that's a very serious issue, ron, and i think -- i think it's a valid point. usually, the s.e.c. will wait before they proceed against the

supervisor, but i think in this particular case, they are attempting to show aggressiveness, and this is part of the new enforcement sort of principles that the agency is adopting under its new chair. so i think they're going after somebody where they have two instances in their view of potential insider trading. >> you know, steven cohen says that he's going to fight this charge. he's got 20 days to respond based on the facts we have so far, sir, how do you think this is going to pan out? do you think he has any case at all? >> well, i think there's always a case, and it's only fair to wait until the evidence is deduced. as ron pointed out, i think some of the details that have filtered out in the press make it quite clear that there's damning information with respect

to some of these trades, and that there were e-mails back and forth with cohen, and the s.e.c.'s claim is he was on notice that something was awry and should have acted before allowing the trades to go through. >> harvey, if i could interrupt, you yourself were hired by s.a.c. and your time preceded mine, but you were to give compliance seminars to the employees at s.a.c. you have an insider perspective. what are your thoughts from that perspective? >> i really don't -- i was asked to talk to his employees about the current state of insider trading, and basically gave them a rundown of where the law was going and the kind of issues that people should avoid. i must say in my mind a lot of this is pretty simple stuff. insider trading is cheating, and

people know when they're cheating. they know when they have information they're not entitled to, and they're not entitled to use. and when they trade on that information, they've cheated, and they've committed fraud. >> harvey pitt, thank you very much for your comments. ron insana, thank you very much for jumping into the chair as well right at the last minute there. i want to go to my co-host brian sullivan, live in detroit. you've been following the big story of detroit's bankruptcy filing. i understand you also have a couple of thoughts on s.a.c., as well. >> well, i think you have to watch the new york stock exchange, right? whatever you think of stevie cohen or s.a.c. capital, they're a huge-volume provider for the nyse. they provide a ton of money every year. i mean, at one point, there were 7%, 8% of daily trading volume on the new york stock exchange. so if we start to see s.a.c. pull back, you certainly got to watch the new york stock exchange. so that's just my take on s.a.c. wrapping it up here, mandy, i

know you're on "closing bell," and you have the mayor, you'll have him at 3:10 after the show. i want to get back to the east coast. i think what we've seen here is that detroit is a city that is tough, the people are fantastic, but it is struggling. it's going to need a lot of help. the process has just begun. it will take a long, long time. "closing bell" with mandy starts right now, and the mayor coming up as well. thanks for watching, everybody. welcome to the "closing bell," everybody. i'm scott wapner here at the new york stock exchange. thanks, brian, for the great job he's done in detroit. mandy is back at englewood cliffs as we stay on top of the developing story. the s.e.c. charging steve cohen of s.a.c. with failure to supervise two senior employees, failing to prevent insider trading. mandy, i know through the next two hours really we'll continue to stay on top of this case. the implications for steve cohen, for his firm, and what it all means going forward.