The law-enforcement response to the financial crisis and misdeeds on Wall Street has generally been disappointing. There has been a steady procession of insider-trading cases, in which hedge-fund managers have been nailed for manipulating the market. But the failures of AIG, Lehman Brothers, Bear Stearns, Fannie Mae, and Freddie Mac required massive bailouts and inflicted enormous damage on the economy. While Wall Street firms have entered into a series of expensive settlements, there have been virtually no prosecutions of top executives.

Eliot Spitzer agrees with those criticisms—to a point. “There is some legitimacy to the notion that insider-trading cases do not confront the structural problems that undergird the most significant cancers that metastasized on the Street prior to ’08—the conflicts of interest woven into the business models of the major banks,” he told me. Few regulators and prosecutors understood Wall Street from the inside out the way that Spitzer did. As New York attorney general, he went after the knots of conflicts after the dotcom bust, making Wall Street banks settle and change their research practices, nailing big mutual funds for abusive trading, and pushing the giant insurer AIG to remove its CEO.

But Spitzer doesn’t buy into the popular progressive critique that the insider-trading prosecutions have been a sideshow. “Having said that, [the prosecutors] deserve an awful lot of credit for having pursued insider trading in the very determined way that they have,” said the former New York governor and current Viewpoints host. “It is an area of fraud that has always been there, and probably will always be there, because the temptations are there.” What’s more, he notes, “They haven’t just gotten small fish, they got big players.” For example, the U.S. government has won convictions of a ring involving Raj Rajaratnam, the former billionaire head of the hedge fund Galleon Group, and Rajat Gupta, the former head of McKinsey & Co. and a Goldman Sachs board member. And now it is pursuing hedge-fund giant SAC Capital.

The problem for prosecutors is that the sins of the financial crisis were very difficult to pin on the head honchos as crimes. “The issue of corporate remedies is the most difficult and the most challenging issue we have to deal with in this whole mess,” he said. “Finding and ascribing criminal intent to a CEO is rarely going to happen.” Goldman Sachs Lloyd Blankfein, he notes, wasn’t directly involved in the Abacus transaction—a collateralized-debt obligation (CDO) deal gone bad that led to a $550 million settlement. “You’d never see an email where the CEO talks about doing that deal. This isn’t how business is being done.” And so in many cases, the best that prosecutors can hope for is a settlement, in which companies pay penalties and neither deny nor admit their guilt. In the meantime, the CEOs stay on.

In the 80s, the Securities and Exchange Commission took the lead in prosecuting insider trading. A decade ago, it was Spitzer’s New York attorney general’s office that went after big Wall Street firms. Now the prosecutorial energy is coming from Preet Bharara, the ambitious U.S. attorney for the Southern District of New York.

The case developing against SAC is another sign of Bharara’s ambition. Last week, the government charged (PDF) Mathew Martoma, a junior executive at the huge hedge-fund complex, with trading on insider information gleaned from a doctor who helped oversee drug trials. Having secured the cooperation of the doctor, the government is aggressively pursuing Martoma. And on Wednesday, SAC told investors it has received a Wells notice—a formal notification from the Securities and Exchange Commission that it plans to pursue the company.

To a degree, Steven Cohen may be an irresistible target for prosecutors. It seems he either has remarkably bad judgment choosing employees, or he has set up an environment in which some people feel compelled or welcome to cheat. Even though he has yet to be directly implicated in any wrongdoing, the government has busted several people for insider trading who were either former SAC employees or SAC employees at the time of their alleged wrongdoing. For all intents and purposes, however, Cohen is SAC. He owns most of the capital SAC manages and makes all the key decisions. “He’s like the John Gotti of the hedge-fund world,” Spitzer notes, taking pains not to compare hedge funds with organized crime. In a prior generation, government prosecutors would put charts on the wall to identify the five organized-crime families and signal who they were after. “Today the target is hedge funds, and Steve Cohen is the capo di capo.”

But getting him won’t be so easy. In the other insider trading cases the U.S. attorney’s office has successfully pursued, it was armed with wiretappings, tapes of conversations, and the cooperation of key players. That doesn’t seem to be the case here. The indictment of Martoma didn’t show any sign that the government had tapes of conversations between Martoma and Cohen. And Martoma has thus far said he is going to fight the charges.

SAC had a huge amount at stake with its trades in the two drug companies Elan and Wyeth, which were developing an Alzheimer’s treatment—it decided to dump, quickly, a $700-million position in the two stocks, and then to sell them short in a very brief time period. The government says it knows exactly why Martoma recommended doing so with such conviction and speed: he was in possession of confidential nonpublic information about the drug’s trial. But there’s no indication that the government can confidently say the same about Cohen. “What is the proof that Cohen knew that the information was something other than publicly available?” Spitzer wonders. “What’s missing here is evidence that Cohen knew it was confidential nonpublic information.” The question in this case will come down to what Cohen said when Martoma recommended selling the position and going short. The former prosecutor says the current prosecutor should ask, “With so much at stake here, did he ask the obvious question that anybody would have: what did you know, and how did you know it?"