Government crackdowns: Where are the victims?

November 20, 2013, 3:00 PM UTC
U.S. Attorney General Eric Holder

FORTUNE — Justice continues to come with slightly less pain for Wall Streeters.

The most recent evidence of this phenomenon comes from the government’s prosecution of hedge-fund billionaire Steven Cohen. Earlier this month, Cohen’s firm SAC Capital pled guilty to insider trading charges. U.S. prosecutors have called SAC a criminal enterprise, and the firm is paying the largest fine related to insider trading in history.

Yet, at the same time, the government is trying to bar individuals who may have been harmed by the hedge fund’s insider trades from using the evidence the government uncovered against the firm. At a recent hearing about the plea deal, the Justice Department argued that individuals who lost money in the same two stocks at the same time that Justice Department says SAC benefited from insider trading should not be considered victims. What’s more, the Justice Department’s plea deal with SAC does not include any admission of guilt for any particular trades, just that it broke the rules in general. Jury selection in a case against a former SAC trader accused of insider trading started on Tuesday.

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The SAC case is the latest in a series of government crackdowns that gives the government something to brag about but seemingly does little for anyone else. For instance, back in September, the Securities and Exchange Commission in its settlement with JPMorgan Chase (JPM) over the London Whale trading mishap got the bank to admit that it was guilty of basically missing something it shouldn’t have. The bank did not admit to defrauding anyone. It also did not admit that top executives knew the risky trades were going on, and that large losses had occurred, which is something other investigators have alleged.

The result: There was almost nothing in the settlement that would help JPMorgan shareholders who are suing, saying they are misled. The same was true of the admission of guilt the SEC got this past summer for hedge funder Phil Falcone.

A similar situation popped up in the Justice Department’s $13 billion settlement with JPMorgan on Tuesday. Once again the language contained in the settlement was vague enough that it seemed JPMorgan would be able to claim it did nothing wrong in future suits ecen on the same deals. Part of the settlement has to do with Washington Mutual, which JPMorgan bought in 2008. As part of the settlement, JPMorgan agreed that an FDIC trust set up to handle some WaMu losses was not responsible for the mortgage losses JPMorgan inherited from WaMu. But the government won’t stop the bank from continuing to claim in court that the FDIC, and not JPMorgan, should still be responsible for other investors’ losses in the same bonds.

“They are a little bit too cute,” Mary Schapiro, the former head of the SEC, told me recently, referencing the guilty pleas the government has been receiving, although Schapiro wasn’t talking about SAC specifically.

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In the case of SAC, the Justice Department says federal law prohibits it from forcing SAC to admit it wronged individual investors. But a judge seems to disagree, or at least isn’t sure. The judge who has to approve the settlement put off ruling on it until March, following objections from the lawyers who are representing individuals who lost money in drug companies Elan and Wyeth, the two stocks that are at the heart of the government’s SAC trading case.

Instead, the Justice Department in its court document argued that the people who lost money are not considered victims just because they weren’t able to make the same illegal profits as SAC. Yes, other investors would have gained if SAC didn’t. The market is zero sum. But those other investors’ profits, or lack of losses, would have just been by accident. Unlike SAC, those investors didn’t have insider information.

So who is the victim of SAC’s criminal enterprise? The government’s answer: The market. But what is the market? It’s all of us, buying and selling stocks or mutual funds and pension fund managers on our behalf.

Not sure how you can damage the market without damaging the rest of us.