As it turns out, the "second hand read" information came from an investor relations officer at Dell. That person just thought he was doing his job, no doubt trying to manage expectations in light of coming under-performance, rather than leaking nonpublic data. No charges have been filed against him.
Note, however, that Cohen's traders could do something that ordinary retail investors probably cannot—get an email from Dell hinting at what's going to happen in a coming earnings report. This is not, however, unique to SAC Capital. No doubt traders and analysts at any big financial company can do the same thing. But it is a sign that regulations intended to "level the playing field" aren't really working out.
The other part of the SEC case involves SAC's trades in the stocks of the pharmaceutical companies Elan and Wyeth. At the time, the two companies were jointly developing an Alzheimer drug. One of the traders involved in these trades, Matthew Martoma, has been accused in a criminal trial of trading on inside information obtained from a doctor overseeing the drug's clinical trial. Martoma has pleaded not guilty to the charges.
Unlike a number of other drug stock analysts at SAC, Martoma had been a bull on Elan in the summer of 2008. Cohen, following Martoma's advise over the objections of the other analysts, had built up a large position in the companies. The day after a 20-minute phone call with Martoma in July 2008, SAC began aggressively selling the shares in the two companies through various dark pools and other schemes designed to prevent others from noticing that SAC was selling its position.
The SEC says Cohen should have suspected Martoma was getting his information from insiders. When Martoma told Cohen that he was no longer "comfortable" with the position, Cohen should have seen that as a red flag and taken action to prevent illegal trading, according to the SEC.
The SAC white paper draws attention to the fact that this was taking place in the summer of 2008—just before everything went into full meltdown mode. The broader market was in sharp decline, while shares of Elan had gone up by 40 percent, making it the second-best performer in the S&P. With perceptions of global risks mounting, having big positions in anything didn't make much sense. Even if Martoma's turnaround on Elan might have raised a "red flag" in different circumstances, getting nervous about a big position in the summer of 2008 just seemed like prudence, according to SAC's lawyers.
(Read more: Social media reaction to the Cohen charges)
What's clear from the white paper is that the SEC faces a feisty opponent in Cohen—and one armed with very clear and plausible arguments against the claims made against him. For the most part, he's not relying on legal technicalities. He's going directly at the factual claims of the government and explaining them with a compelling counter-narrative.
Here and there, however, glimpses into the darkness emerge, even in a paper written by SAC's lawyers. At one point when discussing information received from a doctor, who may or may not have had nonpublic information about the Elan/Wyeth drug trials, the white paper says that even if the doctor did have confidential information he wouldn't have been under a legal duty to keep it confidential (which, in turn, means trading on it wouldn't have been illegal). That's the kind stuff that sends chills through the spines of investors or regulators—the idea of hedge funds with access to confidential information that they are somehow allowed to trade on.
—By CNBC's John Carney. Follow him on Twitter @carney.