Steven Cohen is back running hedges (or do we call them dodges?) on Wall Street after being banned for two years from investing other people’s money. He is sixty-one years old, and has houses filled with beautiful things. His lifetime focus is trying to edge others in the market using whatever means necessary. He is said to have a reptilian cool when it comes to trading on the margins, making him one of the best traders ever. Cold-blooded is one thing. Cheating with inside information is another.
He can deny it all he wants. Nobody believes him because “everybody does it.” Proprietary, nonpublic information, the ‘black edge’ of the title, “is like doing in elite-level cycling or steroids in professional baseball. Once the top cyclists and home-run hitters started doing it, you either went along with them or you lost.” But it is also that kind of wrong: it corrupts the process so completely that winning no longer means anything.
Kolhatkar wrote for Bloomberg Businessweek for most of the time she spent gathering material for this book, but now she works as a staff writer at The New Yorker. She has the skill to make a boring story about old white men on Wall Street buying stuff interesting. We learn what didn’t work the last time government lawyers went after Cohen. If we are going to stop the kind of self-aggrandizement that leads to corruption of our most important governing principles, we need people who are brave enough to take on the cheaters.
That wouldn't be current and former employees of Cohen’s staff who were so internally corrupt already, like lifelong liar and cheat Matt Martoma, serving nine years for his part in the Elan trade that made Cohen dump and short stock he held in a company with a new Alzheimer drug, netting Cohen an estimated $275 million. Martoma had to change his name from Ajai Thomas because he was expelled from Harvard Law School for illegally modifying his transcript to get a clerkship.
Kolhatkar gives Martoma the slightest bit of cover by suggesting Martoma was traumatized in his childhood by a demanding father, but I’m afraid what we see is a character weakness so severe that Martoma felt entitled to criminal behaviors despite being a young, handsome, privileged man. His father says at his trial that he "maxed out" his gifts. Steve Cohen is the same kind of man. He has one gift that we can see. He is also more willing to be criminal than we are, perhaps as compensation for a kind of social and spiritual impoverishment. He will be remembered for…what? For buying things? Illegally. Wow. Big man.
If I understood the investigations into Steve Cohen, it was conducted separately by three different branches of government: the FBI, the U.S. Attorney’s office, and the Securities & Exchange Commission. These players got together occasionally to share information, but were all the time afraid they could not make a case with the information they had gleaned unless someone in the Cohen organization flipped. Kolhatkar has an especially interesting discussion on why the ethically-challenged Martoma did not flip. To date we do not know why.
Several cases were being investigated and litigated by this same group at the same time, i.e., cases for other insider trading by the same miscreants, individual cases against Cohen’s current and former employees, cases against Cohen’s company, etc. Cohen did end up paying more than a billion dollars in fines, but he was never jailed. He was just prevented from playing with other people’s money for two years. One of Cohen’s former traders, David Ganek, actually countersued government entities, the FBI and Preet Bharara’s office of the U.S. Attorney for the Southern District, for abridgment of his constitutional rights during that investigation. Ganek lost that challenge in October 2017.
Shortly after the decisions on Cohen's company SAC and Mathew Martoma, two cases decided earlier setting precedent on insider trading (Todd Newman and Anthony Chiasson from Diamondback and Level Global, two firms with ties to SAC) were reversed, in effect reprimanding Bharara's office of zealotry. A year later, the Supreme Court ruled unanimously that the Newman overturn was too lenient. The fight for right is ongoing.
Kolhatkar draws the contrast between those working for the government with fewer resources and those sleek white men working for Cohen. In the years after the investigation, some attorneys moved from one side to the other: the New York Times reports
“A day after Lorin L. Reisner announced that he was stepping down as head of the criminal division of the United States attorney’s office in Manhattan, the law firm Paul Weiss on Thursday named him as a partner in its litigation department.”Paul Weiss supplied Cohen’s legal team. Antonia Apps, the attorney who tried the Steinberg case, went to Milbank, Tweed, Hadley & McCloy. A high-level FBI investigator, Patrick Carroll, went to Goldman Sachs' compliance department. Amelia Cottrell of the SEC went to the firm where Cohen’s longtime defense counsel, Marty Klotz, worked. Sure, why not? Maybe one day, one of those who know both sides of the street will do the right thing for the right reasons.