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The Taming of the Trading Monster

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Illustration by Kristian Hammerstad  

But the truth was Cohen was no longer in control of his fate. Many on Wall Street greeted his protestations of innocence with skepticism. Could he really not have known about portfolio manager Matthew Martoma’s “black edge,” which in the parlance of the office was an edge that came from illegal information. Martoma, who’s since been convicted of insider trading and faces almost 20 years in jail, had spoken to Cohen on the phone the day before Cohen started dumping stock, earning or saving $276 million, a basis of Bharara’s charge against the firm. Was it possible that Cohen didn’t ask Martoma the source of his information?

Another blow came on July 19, when the SEC filed more charges, accusing Cohen of failing to supervise (it’s currently stayed). Cohen was exasperated. “What the fuck does the government want?” he complained. “When will it end?”

When Bharara announced the criminal indictment of SAC a week later, the vast trading floor devolved into barely controlled chaos. Work all but stopped as all eyes focused on CNBC. “A lot of people were thinking Steve was just going to walk away,” said a person at the offices that day. “Assistants were asking if they should box up their belongings.”

Cohen took to the company’s conference system. People crowded into offices to listen. He sounded somber as once again he tried to reassure them: “We’re going to be okay. We’re going to get through this.”

The next day, a Friday, Cohen dutifully sat at his trading station, making the point that business would proceed as usual. But in private he was shell-shocked. A friend who visited at the time said it was like making a shiva call; Cohen seemed catatonic, as if the effort to speak was too much for him. He and Alex retreated to East Hampton, where Cohen had to face yet another worried audience: his kids. They’d brought the four youngest of their seven children, three teenagers and a college student home from Brown, all girls. Alex had shielded their kids, hiding the newspapers and putting the topic off-limits at family dinners. But after the indictment, protecting them no longer made sense. The U. S. Attorney had stood before the press and all but called their father the head of a criminal enterprise, and the story was leading the news.

The kids went to the second floor, which has seven bedrooms plus Steve’s office, where he’d installed a half-dozen trading screens and a camera that transmitted his every gesture back to the main office so everyone would know his moods. “He was afraid of his children’s reaction,” Alex confided to a friend. “He worried that they would think less of him.”

He told the girls that what they were going to hear and read wasn’t going to be nice. A lot was going to be hurtful. “People will have different opinions,” he said, “and some are going to be untrue.” They had pressing questions. Was their dad in trouble? Had he done something bad?

“People in the company have done things that are wrong, and they’re going to pay for what they did,” he said. His position was that he’d been betrayed by them.

“I didn’t do anything wrong,” he assured his children.

Alex had invited friends for dinner, but Cohen bowed out after a few minutes and retreated to his office, where he slumped in a chair, turned on a Yankees game, and stared at the screen.

Even after the indictment Cohen clung to the idea that his world hadn’t changed. He hated the thought of turning his hedge fund into a family office—Soros had done that after financial regulations changed, but Cohen viewed it as almost a type of castration. “Hedge funds are what’s in the limelight,” explained Tim Selby, president of the Hedge Fund Roundtable, an industry group. “The more money you manage, the more successful you’re perceived to be,” and as a family office, Cohen would manage less money. On August 10, he sent another memo to the staff: “Will the firm evolve? Yes … In what manner it’s too early to say.”

Cohen’s investors had gotten skittish; many were abandoning the firm. So he assumed another unfamiliar role, that of supplicant, personally lobbying investors to stick with him. For 20 years he’d given them returns of 30 percent annually on average, and he resented their disloyalty. When one investor complained that he was tired of continually explaining why he was still invested in SAC, Cohen looked him in the eye. “If you don’t want to stay, pull your money,” he said. Many did, taking with them billions of dollars.

By the fall, three months after the indictment, reality finally overtook Cohen. ­Bharara couldn’t get Cohen, but he could take down his most prized possession—SAC would have to close. Cohen was given no choice but to convert to a family office, returning investors’ money and trading only his own funds—still more assets than most hedge funds controlled, but in another sense it was the end. SAC, one of the dominant hedge funds of its generation, was out of business.


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