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Black Edge
Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street
- Read in 15 minutes
- Audio & text available
- Contains 9 key ideas
Synopsis
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.
Key idea 1 of 9
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.
Key ideas in this title
- Steve Cohen was a talented trader and was blessed with early success, but faced charges of insider trading.
- Cohen built up his own investment firm, SAC Capital, which systematically sought inside information.
- SAC was accused of manipulating stock prices and a culture of seeking inside information became embedded.
- In 2008, SAC used research into Alzheimer’s to benefit in massive insider trading.
- By the late 2000s, the US regulatory authorities began to hone in on insider trading.
- In 2011, SAC trader Mathew Martoma and Dr. Sidney Gilman came to the attention of US authorities.
- In late 2012, Mathew Martoma was arrested and SAC paid a record fine to settle charges of insider trading.
- SAC agreed to pay another fine and Martoma was sentenced to prison – but Cohen walked free.
- Final summary
