The Taming of the Trading Monster

Illustration by Kristian Hammerstad

“Even billionaires have feelings,” Alexandra Cohen had taken to saying. Her husband, Steve Cohen, is the billionaire in question. He’s one of the most successful hedge-fund managers in history—“the Michael Jordan of trading,” in the words of one Wall Street observer. He’d built SAC Capital Advisors into one of the most profitable hedge funds in the world while amassing a net worth estimated at $11 billion. Cohen was never known for his attention to feelings. He had a reputation for brusque, money-talks-bullshit-walks office interactions. He was the opposite of a ­sentimentalist—if one of his traders missed his numbers, he was gone.

But that was before U.S. Attorney Preet Bharara, suspecting him and his firm of insider trading, began pursuing Cohen as if he were a crime boss. Federal agents bugged his home phone and raided the offices of former employees who’d started their own hedge funds. They subpoenaed millions of pages of SAC documents while working their way up the chain of command, flipping one former employee after another. They even had one past portfolio manager attempt to infiltrate Cohen’s company by getting himself rehired, though Cohen didn’t take the bait.

As Bharara’s web closed around him, Cohen complained to associates that his success had made him a target. “I’m not doing anything different than a hundred other people have done,” he said to a colleague. “It’s not who I am, it’s what I am.” He called Wall Street peers, trolling for sympathy: “I feel like I’m watching a bad movie and I’m the star,” he’d say. On vacation one year, he ran into a fellow hedge-fund manager: “It’s not fair,” he complained. “Why me?”

The denouement of a pursuit so relentless could not have been other than an anticlimax. Ultimately, Bharara couldn’t make a case against Cohen, but at a press conference on July 25, 2013, the prosecutor announced a sweeping indictment against his company. Bharara’s language was as brutal as anything Cohen had ever said on the trading floor. Among other things, he called SAC “a veritable magnet of market cheaters” and suggested that Cohen bore responsibility for “institutional indifference to unlawful conduct [that] resulted in insider trading that was substantial, pervasive, and on a scale without known precedent in the hedge-fund industry.”

For Steve Cohen, there was an irony in Bharara’s quest: Several years before the indictment, the billionaire had already made a decision to change his life. Cohen had always been a homebody—though home was a ­country-­club-like Greenwich mansion on 18 acres, with a basketball court, an indoor pool, and a two-hole golf course (he seldom played on it). He bunkered there, or in one of his two East ­Hampton homes, surrounded by a billion-dollar art collection. The scenes he made most often were at Chelsea art galleries, accompanied by his youngest daughter, or on the sidelines at an older daughter’s soccer games.

Two decades earlier, he’d married Alexandra Garcia, a single mother he met through a dating service—she was the only one of 20 women who responded to his invitation. She, too, had few social ambitions. They didn’t entertain lavishly and seldom went to charity functions. When they did, their photographs didn’t appear in the society pages, because Cohen would buy up the rights to every available photo of himself. Mostly, their lives were organized around dinner, served every night at six. “We’re regular, we’re normal,” Alex insisted.

If on the trading floor Cohen was a voracious, unsentimental monster, working his will, conquering all he saw, and verbally thrashing any employee who made a ­misstep, off duty the swagger disappeared—he was just another zhlub in a polo shirt. Asked to give his opinion on the outlook for business, he would demur: “Who would want to hear what I have to say?”

With Steve Cohen, for a very long time, there were two dimensions: home and ­trading. He couldn’t even imagine another possibility. When a friend asked, “Why do you keep doing it?,” he responded, “What else is there to do?”

But by 2010, when he was 53, Cohen had undergone a change—some saw it as a midlife crisis. He’d begun to wonder what other talents he had, what other kind of person he could be.

One model was said to be billionaire George Soros, an unlikely aspiration for a suburban kid from Great Neck, Long Island—though the two shared the same Rain Man–like gift for seeing patterns in streams of numbers. Soros—a Hungarian-born Jew who had escaped the Holocaust and become an author, Ph.D., and billionaire investor—bubbled with ideas about the global economy and was determined to see them played out on the world stage.

Cohen had never been an intellectual—he bragged about playing poker through the University of Pennsylvania. And he’d never said a public word about politics. At SAC, no one knew if he was a Democrat or a Republican.

Illustration by Kristian Hammerstad

But the newly imagined Steve Cohen started to mingle with the burgeoning class of Wall Street intellectuals, for whom an article of faith has been that net worth and wisdom are closely correlated. He began to accept speaking invitations at hedge-fund conferences, like the SALT Conference in Las Vegas in 2011. That year, he even jetted off to the World Economic Forum in Davos, where he dined one evening with Jean-Claude Trichet, then head of the European Central Bank—though he kept calling him “François.” In 2012, Cohen ventured into politics, coming out for Mitt Romney and hosting a fund-raiser at his mansion. Cohen had an Election Night dinner in Boston for the highly unofficial ­billionaires-­­against­-Obama movement—along with Daniel Loeb and Paul Singer.

But perhaps the most significant sign of transformation was his pursuit of a professional baseball team. The owner of the Los Angeles Dodgers, Frank McCourt, had taken the team into bankruptcy, putting it in play. Cohen insisted that baseball work as a business, and assembled experts to pressure-test the spreadsheets. Dodger Stadium’s parking lots were a particular financial pressure point. The more he investigated, the more excited he became. “I feel like it might really suit my personality and background,” he told a friend, who added, “It might have been that thing that helped him get away from staring at the screens ten hours a day.”

With the pursuit of the Dodgers, it became clear that Cohen, who’d been feared and admired even as he stayed in his trading bunker, was ready to greet his public. “[The Dodgers are not] a philanthropy. It’s a business,” Cohen told an associate. “But it makes people happy, it entertains them, it gives them something to take their minds off their problems. I want to buy the team and make money, but it’s also good for the people of Los Angeles and baseball fans.” Cohen no longer dreaded the publicity; he was looking forward to it.

In March 2012, Cohen was declared the leading bidder in the press, reportedly in for $1.6 billion. Cohen had already begun imagining how he’d rearrange his life to suit this exciting pursuit. He planned to scale back at SAC. He would open an L.A. office so he could trade, but only part time.

He hired an architecture firm to begin to plan a renovation of the stadium. He lined up a potential team president, Arn Tellem, and a general manager, Tony La Russa.

Then, on March 28, 2012, Cohen was ­outbid. A consortium led by Guggenheim Partners, with Magic Johnson as front man, offered more than $2 billion, which would make it the most expensive purchase of an American sports franchise in history.

Cohen was said to have been “astounded” by the bid. He could have written a bigger check, but that didn’t make business sense. He didn’t want to be seen as a fool. Still, the outcome bothered him. “Steve was really disappointed,” said a friend. “He really wanted it.”

As the Dodgers eluded him, Bharara’s investigation was ­heading into the endgame. At the office, Cohen found he was doing little but damage control, which demanded a whole new skill set. “He used to spend 99 percent of his ten-hour day in front of a screen watching technicals and trading. Over the last two years, it had become half the day, then 10 percent or none,” said a colleague. Before, his office conversation had been about trades and P&L. Now he listened to people’s feelings. He kept his office door open and pulled aside portfolio managers and analysts, probing them about their concerns. He affected an Alfred E. Neuman “What, me worry?” expression. “I sleep like a baby,” he insisted, half-joking. And he tried to assure them that the worst had passed, hoping it was true.

A year later, in March 2013, he agreed to pay the SEC $616 million to settle civil charges, a record-breaking sum that he hoped would put the matter behind the company. The SEC settlement was at that point better than it could have been. The SEC didn’t require that SAC close and convert to a family office, as many had believed it would. So the hedge fund could survive; it would be smaller, but its “viability” was assured, Cohen told the staff. A June 5, 2013, memo was blunt: “We have no plans to become a family office.” As part of the SEC deal, the company didn’t have to admit wrongdoing, and Cohen blithely explained that it wasn’t culpable, even if there were a few bad apples.

Still, on the trading floor, fears persisted. Top employees didn’t know what information to trust and sometimes assumed the worst. In the office of SAC president Tom Conheeney, one portfolio manager got to Cohen. “Everyone is wondering if the firm will make it to end of year. And if they will get paid,” he said. Cohen jumped out of his seat and shouted, “I’m not closing the office! You will get paid! I guarantee it!”

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.

Whatever humiliation Cohen suffered, the truth was that he’d escaped the worst of it. Martoma, the one person who it appeared could have testified about the source of Cohen’s information, had every motivation to cooperate with the government. He was fired by Cohen in 2010 for not making money; he had three young children and faced a long prison term. Cooperating was his only shot at leniency. But he went to trial and was convicted on February 6—Cohen did him the favor of paying his legal bills. (He didn’t turn on his boss, Cohen’s lawyers contended, because Cohen had done nothing wrong.) Without Martoma, the government could not prove that Cohen knew he was trading on nonpublic information. And with that, the criminal case against Cohen seemed to wind down. He agreed to pay $1.2 billion in fines and seizures, a record sum that would in essence come out of his pocket. And, for the first time, he agreed that SAC would admit guilt. SAC was “deeply remorseful,” said one statement.

Cohen was aware that he’d had a near-death experience.

One day, an admirer approached him on the street. “You’re a legend,” the man said. “Legends are usually dead,” Cohen answered.

The indictment foreclosed on many of his ambitions. The London office, which had 50 employees, closed, as did a smaller office in Chicago. He closed several internal units, too. Some 150 people out of a thousand were fired, or left and weren’t replaced. Four years earlier, he’d lured back a couple of SAC alums, Anil Stevens and Glenn Shapiro, with considerable fanfare—at the time, they were working at Balyasny Asset Management, a $3.3 billion hedge fund in Chicago that Cohen treated as a kind of farm team. In August, Stevens and Shapiro and eight of their traders decamped, with Stevens rumored to be starting his own fund.

“It’s no longer a growth company,” said Selby. “The best talent wants to see upward opportunity,” which comes from investors giving you their money. “That opportunity doesn’t exist in a family office.” For the most ambitious tier of traders, the ones for whom Cohen was a role model, merely holding your own was not so different from losing.

Once, having SAC on your résumé was like graduating from an Ivy League school. Now a connection to Cohen was a stigma. CFOs who formerly jumped on the phone with an SAC analyst now steered clear, concerned that just talking to someone associated with an indicted company was risky. For outsiders, SAC and his family office, which he named Point72, were one and the same. “People at Steve’s firm complain that they don’t get as much corporate access,” said one colleague. “That’s a challenge.”

Employees who remained felt harassed at times. There was an endless flurry of pointed questions from neighbors and friends wanting to know the “real story.” The casual concern, as well as the government’s ongoing attentions, were said to be a motivation for the impending departure of Gabriel Plotkin, one of SAC’s top performers. Plotkin hadn’t been charged with a crime, but one indicted former employee gave him insider information. Plotkin plans to leave SAC to start his own firm—Cohen reportedly agreed to provide seed money.

Cohen found himself in one more unfamiliar position: He was vulnerable. He tried desperately to stem defections, wielding a stick by pressuring managers to sign two-year commitments and threatening to sue those who left before their contracts expired. He also issued several rounds of bonus increases. Some portfolio managers, deploying the skills they’d learned at his side, used their newfound leverage against him, negotiating quicker payouts of deferred benefits.

In trying to manage his anxious office, Cohen set in motion another strategy. It sometimes seemed that Cohen had had a personality transplant; he talked as if he’d been through est training. “I appreciate your commitment, not just to me and this business, but to each other,” he wrote to the staff. SAC had been brutally competitive. Now he celebrated “mutual commitment” and “creating a community.”

On the Street, his competitors took Cohen’s new approach as a sign of weakness. As one recruiter explained, “Other hedge funds smelled blood in the water.” In one three-month period, a dozen managers left, many for competitors like Moore ­Capital and Millennium and BlueCrest. In a reversal of fortunes, Balyasny, the modest midwestern fund that once fed talent to Cohen, now scooped up SAC traders.

“The number of departures was about the same as in previous years,” said an analyst who followed the company. “The problem that you have is that the quality of the departures is much higher.” Of all SAC’s portfolio managers—and there were over 100 at times—only ten or 15 were “the real moneymakers.”

Plotkin, just 35, had been a Cohen protégé for a decade and managed $1.2 billion. Chris Procaccini and Wayne Chambless left for Highbridge. Nick Tiller, another top performer, retired to pursue charity work. Tiller ran over $1 billion, and Cohen needed the capital to cover redemptions. Departures like Tiller’s created a feeding frenzy on Wall Street. Competitors knew that Cohen had to liquidate Tiller’s large positions, which would force down the price of those stocks. So they shorted those companies, pocketing profits as the price dropped and hurting Cohen in the process. It was “scummy,” said one source, though he didn’t blame them—Cohen would have done the same.

For Cohen, the lost money was not the only depressing part. His office was his clubhouse. “He’s happy when you can get over being intimidated,” said one portfolio manager. And those who did became among his closest friends. With them he could relax. They understood what it was like to lose huge sums of money in a few minutes—and Cohen had once lost $150 million in a day.

But Cohen also knew it was better that some of his longtime friends had departed. He needed to demonstrate that his company was no longer “a magnet of market cheaters,” in Bharara’s phrase. In an internal memo clearly destined for a larger audience, Cohen boasted of a changed corporate ­culture: “We are creating a community dedicated to accountability.” Cohen contracted with a cybersecurity company named Palantir to implement its “big data” surveillance capabilities, pointing out that the company was used by the FBI and the SEC. He engaged a former federal prosecutor, Vinny Tortorella, to be his “chief surveillance officer,” a newly created post, and a former McKinsey director to work on company culture. And he paid for a government-approved monitor, Bart Schwartz, who’d previously worked on recovering Madoff losses—a connection not lost on Wall Street.

The moves garnered headlines in the press and scattered praise. But to some, they looked like elaborate window dressing. “If this had been a public company or a bank,” said a person who speaks to Cohen, “the top people would have been gone. You can change the name, but you can’t snap your fingers and say it’s a new beast, not with the same exact management.” SAC’s CEO, general counsel, and president remained at Point72. Internally, some grumbled about the continued tenure of Tom Conheeney, who’d been president since 2008 and COO before that and was perceived as an architect of the SAC culture. “A lot of people feel that he misled them,” downplaying the jeopardy to the company, said the person close to Cohen, though others felt he was just “too optimistic.”

At the Point72 offices, Cohen wore his usual jeans and sneakers and, because he kept the trading floor cold to prevent dozing off, a zip-up sweater—he had dozens of them in his office closet. Cohen continued to play the unflappable leader, as if little had changed, but he knew that SAC’s stellar performance would always have an asterisk next to it, like A-Rod’s home-run totals. Cohen could have used the changed circumstances to make a graceful exit; he could have unchained himself from the computer screens, as he’d once said he wanted. But Cohen hated that his reputation had been ruined and was determined to rehabilitate it. He needed to show people that he could win without even the suggestion of cheating—“and to do it under a microscope,” as a confidant put it.

Last year was a good start. The fund was up 20 percent. His own take was staggering, one of his best ever. He personally made $2.3 billion, according to Forbes, more than enough to cover civil and criminal penalties. Cohen clearly believed the worst was finally behind him. He knew that excursions to places like Davos were a thing of the past. But he was ready to signal that he was coming back—“relieved,” in the word of one observer. He was spotted at a Knicks game with his favorite gallerist, Larry Gagosian, and at a Sotheby’s art auction and a dinner at Robin Hood, the charity of the hedge-fund community. In the midst of his troubles, he’d resigned from its board, but he was clearly making a statement: He was still a member of the club.

“My husband is going to make it the best family office possible,” Alex told friends. “He’s doing as well as can be expected.” Alex, for one, saw a benefit in her husband’s difficult passage. It had taught him a valuable lesson. He was humbler and wiser, and realized how lucky he was, especially compared with some of his former employees. “He knows what’s important now,” she said. Steve Cohen had his freedom, his wife, his kids, his homes, a business—and $11 billion. It was something.

The Taming of the Trading Monster