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Zusammenfassung von Black Edge

Name: Black Edge
Rating: 4.4 (21 reviews)
Author: Sheelah Kolhatkar

Sheelah Kolhatkar

Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street

4.4 (21 Bewertungen)

20 Min.

Kurz zusammengefasst

Black Edge by Sheelah Kolhatkar is an insider's account of the biggest insider trading case in history, involving hedge fund billionaire Steve Cohen and his firm SAC Capital Advisors. It exposes the corrupt practices of Wall Street and the difficulty of bringing justice to those who operate above the law.

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What’s in it for me? Discover how Wall Street fat cat Steve Cohen got rich through illegal insider trading.

It’s common knowledge these days that Wall Street has a lot to answer for. After the events of the 2007-2008 financial crisis, one would hope that governments would crack down on the excesses at the heart of global finance.

Sadly, that simply has not been the case, and the injustice of this state of affairs is perfectly personified by Steve Cohen, a Wall Street investor who made billions of dollars by attaining a “black edge” over fellow investors.

Cohen procured illegal, or “black,” insider information about companies’ performances in order to gain an advantage over fellow investors. To the outside world, he was miraculously lucky, always betting on the right companies at the right time. In reality, as the investigative journalist Sheelah Kolhatkar discovered, he was almost certainly utilizing an unfair advantage to surpass his rivals.

In these blinks, you’ll learn

how the hedge fund Cohen founded systematically used illegal insider information to manipulate stock prices;
how a drug to help Alzheimer's patients made Cohen $273 million; and
why, after multiple criminal proceedings, Cohen has managed to remain a free man.

Steve Cohen was a talented trader and was blessed with early success, but faced charges of insider trading.

In 2008, in the midst of the worldwide financial crisis, US federal agents were in the process of taking down Raj Rajaratnam, a Wall Street titan, when they discovered something fascinating.

Rajaratnam was illegally using inside information from companies; he traded on this information and profited from it massively. The agents were intrigued at how one name kept cropping up during interviews with Wall Street insiders: Steve Cohen.

Was there an even larger case waiting to be uncovered? Rajaratnam, it turned out, was small fry – the investigation was only just getting started.

So who is Steve Cohen? Let’s start from the beginning.

Steve Cohen was born in 1956 and grew up in a middle-class family on Long Island, New York. From a young age, he was fascinated with finance.

As a student at the famous Wharton School at the University of Philadelphia, he read the Wall Street Journal every morning and followed the stock market. He was talented too: he played poker with his fellow students and made a lot of money doing so.

In 1978, fresh out of Wharton as a 21-year-old, he landed a job at Gruntal & Co., a New York brokerage firm. Even then, his skills shone through: in one afternoon, he made $4,000, a huge figure in 1978.

Cohen was successful, making $5 million to $10 million a year. But it didn’t take long for the first signs of wrongdoing to appear as he faced charges of insider trading.

In 1985, the Securities and Exchange Commission, or SEC, looked into Cohen’s transactions. Cohen had received inside information through a friend about an imminent takeover of electronics company RCA by General Electric. Cohen invested heavily in RCA shares and made $20 million in profits when the takeover was announced.

Even though the criminal case was later dropped, it strongly indicated Cohen had a somewhat unorthodox approach to trading.

Cohen built up his own investment firm, SAC Capital, which systematically sought inside information.

Within 14 years, Cohen moved from being a lowly junior trader to a revered Wall Street personality. It would only be a matter of time before he wished to break free of Gruntal and venture out on his own.

So it was that in 1992, Cohen founded his own investment firm, SAC Capital Advisors, using his own initials for the company name. It was a hedge fund that profited by investing money gathered from different individuals and institutions.

SAC was accused of manipulating stock prices and a culture of seeking inside information became embedded.

By the mid-2000s, Cohen was one of the richest men in the world. He had a personal fortune of nearly $10 billion. He allowed himself a few luxuries with this cash, and often splurged on expensive artwork.

But something seemed off. SAC’s huge profits seemed just too good to be true, and there simply had to be something shady going on.

In 2008, SAC used research into Alzheimer’s to benefit in massive insider trading.

Almost 5 million people have Alzheimer’s disease in the United States alone. The disease causes severe memory loss and, unfortunately, no effective treatment has been discovered.

A breakthrough in this regard could potentially result in millions of dollars in profits, so any development is sure to attract Wall Street’s attention.

By the late 2000s, the US regulatory authorities began to hone in on insider trading.

SAC’s business model was heavily and clearly based on insider trading.

Even so, in the late 2000s, insider trading was common practice at Wall Street hedge funds. Unlike closely monitored big banks, the relatively new hedge funds operated below the radar of the regulators and could get away with murder.

In 2011, SAC trader Mathew Martoma and Dr. Sidney Gilman came to the attention of US authorities.

Once the Wall Street Journal had revealed what the FBI and SEC were up to, the authorities had no choice but to move quickly. Otherwise, they ran the risk of Wall Street traders destroying all evidence of insider trading before they could get to it.

Just a few months later, in May 2011, US authorities had their first breakthrough, and placed Mathew Martoma and Dr. Sidney Gilman on their suspect list.

In late 2012, Mathew Martoma was arrested and SAC paid a record fine to settle charges of insider trading.

When, in 2011, FBI agents pulled up in front of Mathew Martoma’s house, they had strong suspicions but no actual evidence of insider trading. In those circumstances, all they could do was ask questions and chip away at his resolve.

However, a year later, that had changed. This time, when the agents arrived for the second time, they weren't there to shoot the breeze. They arrested him on the spot.

SAC agreed to pay another fine and Martoma was sentenced to prison – but Cohen walked free.

Finally, there was another development in the case. The SEC got their hands on an email that potentially connected Cohen to another case of insider trading at SAC.

In the summer of 2008, Mike Steinberg, an SAC trader, received inside information about the computer company Dell’s disappointing business figures, which weren’t yet public. Steinberg used the information to bet that Dell’s stock price would drop, and when it did, he netted a cool $1.4 million. It was an email that Steinberg had sent to Cohen about this information that the SEC now had in its possession.

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Worum geht es in Black Edge?

Black Edge (2017) tells the real-life tale of greed and financial crime on Wall Street during the 2000s. It describes large-scale, illegal insider trading at SAC Capital Advisors, a hedge fund founded by star investor Steve Cohen. SAC maintained a culture of trading on inside information, but while some traders at SAC were convicted of insider trading, US authorities could never stop Steve Cohen himself from making his millions – and he was never convicted of any crime.

Bestes Zitat aus Black Edge

When it came to innovating financial crime, hedge funds were like Silicon Valley.

—Sheelah Kolhatkar

Wer Black Edge lesen sollte

Investors and analysts
Lawyers and investigators
The 99 percent who don’t benefit from Wall Street trading

Über den Autor

Sheelah Kolhatkar is a staff writer at the New Yorker. She has also written for the Atlantic, the New York Times and Time magazine. She is a public speaker and commentator on business, economics, Wall Street, regulation and financial crime. Before becoming a journalist, Kolhatkar was an analyst at two New York hedge funds.

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