ALL MY EURUSD SHORT TRADES GOT STOPPED OUT

I got stopped out  from my short eurusd trades  -1200 pips!!!!!

I have only EURCHF long at the moment 

MERRY CHRISTMAS

MERRY CHRISTMAS

S&P 2013

NOVEMBER P/L 0 - NO TRADES

During   NOVEMBER I did  no moves.I still have three open positions:

---> Long EURCHF -  still open at 1.2150 (s/l 1.20)

---> Long EURCHF- still open at  1.2375 (s/l 1.20)    

---> Long EURCHF - still open at 1.2360 (s/l 1.20)

CITI: BITCOIN WILL LOOK ATTRACTIVE TO RESERVE MANAGERS AS A COMPLEMENT TO GOLD

Citi's Steve Englander Addresses 5 key responses to his previous more negative view on Bitcoin.

1)    Bitcoin is a generic payment system as much or more than a specific store of value and has tremendous advantages over current payments systems

2)    Its run-up in price represents dissatisfaction with central banks and money printing and the desire for a currency not driven by political opportunism

3)    First mover and networking economies of scale advantage will make Bitcoin and a couple of other internet moneys dominate Internet money in the future

4)    It can keep growing as long as there was a group of individuals and businesses willing to accept it

5)    It’s a tulip bubble and will collapse

1) Bitcoin as a payments vehicle

Many commented that Bitcoin was revolutionary as a payments mechanism, rather than as a store of value. The run-up in the price of Bitcoin could be viewed as speculative but its impact on the payments system would be durable, even if the price stabilized or fell.  Bitcoin’s competitors are credit card companies, wire transfer companies, weak fiat currencies and the like. Its advantage was that that its secure cryptography gives it strong security with respect to falsifying transactions and the transactions cost is almost zero.  So you would not have to hold Bitcoin in order to transact in it, at least not for very long.

Anonymity was also viewed as a plus by many, but whether governments can, will and should get some handle on internet transactions is under debate. Some also argue that its decentralization is an advantage. The ‘ledger’ that keeps track of Bitcoin transaction seems resistant to fraud, but there have been issues with Bitcoin exchanges and other elements of the transactions process.

Investors who focused on the potential Impact of Bitcoin on the payments system sometimes saw  the Bitcoin appreciation as a distraction. Bitcoin’s sharp price run-up is attracting more involvement now, but could be a disadvantage if price ever took a big fall.

2) Bitcoin as an alternative to fiat currencies

When G3 central banks are expanding their balance sheets like there is no tomorrow, you can understand the search for alternative stores of value. Some make a ‘wisdom of crowds’ argument that monetary management is likely to be better if it reflects the judgment of a diffuse constituency of users rather than a central bank governor or board. In short, this is the gold standard, but with a lot more portability and ability to transact. That said, Bitcoin protocols are decided by a group of programmers, and their goodwill is taken for granted.

To some investors it is perfectly clear that the combined judgments of individuals across the globe will be superior to the centralized policies made by central banks. To many holding this viewpoint, the ineptness of global central banks has made the bar for outperformance pretty low. This view  probably appeals to you if you think the panics of 1837, 1873 or 1893 were preferable to the Great Recession of 2008 (http://en.wikipedia.org/wiki/Panic_of_1837,http://en.wikipedia.org/wiki/Panic_of_1873, http://en.wikipedia.org/wiki/Panic_of_1893). In those times the absence of a central bank did not preclude private sector speculation from generating bubbles and panics. Admittedly, some of those panics started because of failed attempts to manipulate or corner certain markets, a feature Bitcoin’s proponents may feel it is immune to.

Bitcoin started as an experiment in a currency that was neither commodity-based nor backed by a governmental authority. There is a risk that participants in the Bitcoin ecosystem may become more self-interested over time, the way broadcast television started with Paddy Chayefsky and quickly morphed into The Beverley Hillbillies. Even now it is unclear to what degree the ‘miners’ out there should be seen as public servants.

We are left with the possibility that the properties of a Bitcoin ecosystem that comes to be driven by individual self-interest will differ from its intended properties. Greed and panic could enter as a significant part of the ecosystem. By contrast, central banks have a mandate to stabilize the economy and financial system, even if you see their performance as inept in practice. Nevertheless, it is not so obvious that a good system driven by individual self-interest will produce a more stable economic and financial system than an imperfect system of central banks trying to stabilize economic and financial markets. Many supporters of Bitcoin argue strongly that this is the case, however.

2a) Bitcoin as a reserves alternative

Reserve managers are likely wondering whether Bitcoin is the answer to their most perplexing problem – where to find a pure store of value, how to avoid currencies backed by erratic central banks  and how to dethrone the USD from its perch in the international monetary system. Bitcoin is much more interesting than the IMF’s SDRs from a reserve manager perspective because it is independent of major currencies. The reserve manager operational problem is two-fold: 1) how to sell a truckload of USD, and to a lesser degree EUR and JPY, without excessively depressing the value of the USD that they are selling and 2) what to buy when there are few attractive, liquid alternative. Bitcoin doesn’t avoid 1) but addresses 2) to some degree.

Bitcoin with its inelastic supply and deflationary bias would look attractive to reserve managers as a complement to gold, and in contrast to fiat currencies in unlimited supply. As a group, reserve managers are conservative and probably would like to see how Bitcoin evolves.  Given the reserves management problem discussed above, there is some incentive for the biggest reserve managers to encourage development of this market to see if it is viable in the long term. Even if it ends up just as a transactions vehicle, countries may choose to transact in Bitcoin or the like, if it enables them to reduce the overhang of USD that they need to hold because of its role in international trade and finance.

Conclusions: i) Reserve managers will not be the first to adopt Internet currencies but they have incentives not to be the last; and ii) The USD would likely be undermined on its international role, were this to occur.

3) First mover advantages

This may be the most contentious area. Bitcoin fans argue that being the first in any area where there are networking economies gives you an immense advantage. Replicability is not an issue because potential imitators will find that businesses and households will sign up with the network that gives them the greatest ability to interact. The analogy is drawn to Internet retail and social media businesses where the business model can be copied but where a couple of companies at most dominate the space. (On the other hand, I still have my login/passwords to a variety of ‘first movers’ services that no one under 40 would even recognize.)

With respect to money, households and businesses will choose the one with the greatest acceptance, so the first mover has a big advantage even if the technology can be copied.This is a very important argument for entrepreneurs involved with Bitcoin and the few other currencies that are leading the charge to commercialize it..

Where diseconomies of scale enter Bitcoin is through the price exposure. The maximum amount of Bitcoin is predetermined and looks likely to be hit in the 22st century. The supply of Bitcoin is set to grow relatively slowly, arguing that the price should keep rising. You can argue that the price of Bitcoin is irrelevant, since it simply reflects the unit of account for transactions. You can also see that there is a host of alternatives that may have some modest advantage over Bitcoin. Both holders of Bitcoin and transactors in Bitcoin have to assess whether the Bitcoin network advantage is strong enough to outweigh the benefits from Bitcoin alternatives. You can find examples of both, but networking situations in other domains are less dependent on reputation than are Bitcoin and other Internet currencies. And such reputational equilibria are very fragile, and probably will not survive any unaddressed issues of theft or fraud.

Moreover, if you transact in Bitcoin,  you likely will choose to hold some to facilitate transactions.The speculative surge in Bitcoin may be a disadvantage if you can find a substitute that has similar characteristics but less of a speculative component. The question is how expensive is it for a business or individual to have more than one internet currency and how much of a disincentive is it to hold a Bitcoin if the price is high, when there are good substitutes with lower prices.

4) The Bitcoin ecosystem is growing exponentially

There is a short to medium term Bitcoin argument that goes something like this. We are just scratching the surface of payment system/alternative currency development. Whatever the competitive environment, in a market that is growing exponentially fast, any reasonable player will get bid up. Ultimately when market growth flattens out, there will be a sorting out of winners and losers, but that flattening out is not visible anytime soon, barring disaster. If this is a repeat of the Internet bubble, we are in 1997, not 2000, so the gravitational pull of the technology will mask small warts and crevices in individual applications.

This is not an argument most of us feel comfortable with, because there is the risk that our calculus is wrong or that some disaster either through fraud, government interference or some breakdown in the system occurs before the market flattens.  However, many investors feel so confident that we are just in the takeoff stage, that they see themselves with a margin to invest. They also have incentives to advocate forcefully the widening of the market because that enhances the value of all existing applications.

5) Tulip bubbles

About 40% of the comments I received argued outright that Bitcoin and similar internet currencies were bubbles, or tools to evade taxes, or conduct illegal activity. Basically, the view was that the Bitcoin appreciation reflects a mixture of greed and optimism, as in Boileau (1674), “A fool always finds a greater fool to admire him." The major issues have been touched on above – replicability, susceptibility to government interference, security vulnerabilities outside the ‘ledger’ level, inability to reverse any transaction, dependence on reputation, fragility and so on. Those who think this is the internet in 1997 should recall that the NASDAQ was back to 1997 levels in 2002, and even briefly touched 1996 levels, so getting in early may mean getting in really early. Just as with the railroads and Internet, it may revolutionize society more than it makes money for investors.

Some investors argued the reverse of most of the pro-Bitcoin commentators, seeing it as most likely a bubble but on the off chance that it wasn’t, it was worth buying a couple in case the price kept shooting up. It was viewed as the high risk, high return investment, with compensation that it was good cocktail party conversation.

Conclusions

Bitcoin and other Internet currencies are viewed by some as a Beanie baby fad and by others as revolutionizing the financial system. Market acceptance of alternative currencies now looks to be growing a lot faster than the pace at which the supply of Bitcoin and Bitcoin wannabees is expanding the Internet money supply. That is unlikely to persist over the medium and long term, but for now it looks as if it would take a major scandal, security breach or heavy-handed governmental intervention to derail it.

Internet currencies suffer from the absence of an anchor to determine their value and from their dependence on reputation and fashion. Replicability is an issue that the Internet currencies will not be able to overcome easily. The role in the payments system is very concrete to investors, although many also see value in a currency in inelastic supply whose value is determined by consensus rather than the monetary authority.  Among skeptics, a minority think that security is a much bigger issue than proponents admit. However correct the longer-term concerns, there is nothing obvious to derail the expansion of Internet currencies in the near-term, as they are meeting both legitimate and illicit economic and social needs.

ZEROHEDGE

KYLE BASS: "FED WONT RAISE INTEREST RATES FOR ANOTHER 3-5 YEARS . STOCKS IS THE ONLY GAME IN TOWN"

Via Financial Sense Newshour:


Jim: Do you feel the debt ceiling debate and the political theater in Washington are hurting U.S. credibility and our capital markets in the long-run?

Kyle: No...the entire world is in the same position we are in one way or another. That’s painting the world with a broader brush, but when you look at the developed western economies (and, of course, we’ll exclude countries with no net debt like Australia and Canada that are natural resource heavy), but the developed western economies with the largest debt loads are all in the same boat. Whether or not they have debt ceilings in the U.S. or bank note agreements like they had in Japan until they recently abolished them, there are all of these potential glass ceilings that are put on the marketplace that always tend to move. I think since 1960 we’ve raised our debt something like 82 times.

Jim: Economists have often said—I’m thinking of “This Time Is Different” by Reinhart and Rogoff—when countries have debt-to-GDP ratios over 100%, they get into trouble; Japan’s is 230%. Why have they not had trouble up until now?

Kyle: When you think about what Reinhart and Rogoff’s book says, it kind of gets to an answer but it’s not the right way to look at things; there are many more variables to analyze the situation with. One is, of course, debt to central government tax revenues—that ratio. Another one is what percentage of your central government tax revenues do you spend on interest alone? Those barometers are much more impactful than just using a debt-to-GDP barometer. And then when you think about Reinhart and Rogoff’s work, if you’ve read all the white papers that they’ve written prior to writing the book, one of the other conclusions that they draw is when debt gets to be about 100% GDP it becomes problematic. Well, what that means is, typically—and, again, painting the world with a broad brush—central government tax revenues are roughly 20% of GDP. So what they’re telling you is when debt gets to be 5 times your revenue, that’s when you start to have a problem. Historically, the analysis that’s been done empirically by academics has focused on the countries that have fallen into a restructuring or a default as a result of this ratio that you and I are discussing. Historically, those have been emerging market economies that have higher borrowing costs. So, it actually makes complete sense that that number is too low when you’re talking about a developed market economy versus an emerging economy because, in theory, a developed economy can borrow at lower rates than an emerging economy can. That being said, in Japan, when the debts are 24 times their central government tax revenue, they are already completely insolvent—it’s just a question of when does it blow up.

Jim: I want to turn our attention to the stock market right now and your view of where you see the markets right now. They don’t seem overvalued when you compare them to 2000 or 2007, but they’re not cheap; and, where do you go in a market when the rate of return on cash or bonds is hardly anything?

Kyle: I think that as long as the Fed—for instance, the Fed is still buying $85 billion a month; almost a trillion a year—you could argue that the Fed is being more stimulative today than they were a year or year and a half ago. When we were running a trillion to a trillion and a half deficits, the Fed, at a trillion dollars in a deficit, was buying every bond that was issued. Today, you have a scenario where the fiscal deficit in the U.S., we think, is somewhere around 650 to 700 billion dollars. So, in theory, the Fed is actually adding more money to the economy today than it was a year ago because the deficit is lower and they’re still buying the same number of bonds. So what I’m saying is the monetary base continues to expand. What the economists are saying is velocity continues to drop at a faster rate than the base is expanding. Well, velocity, I believe, is a coincident indicator at best—possibly a lagging indicator. So, when the v [velocity] turns around that’s when inflation shows up, but for now--you’re asking about stocks…I think, given the lack of nominal yield in the bond market, all of the new money is going to continue into stocks. The interesting thing is it’s going to make the rich people richer and the middle and lower class won’t be any better off, which is the opposite of what the administration is trying to pull off. 

Jim: What is your outlook on when the Fed will taper or, eventually, raise interest rates?

Kyle: I personally think that what enables the Fed to taper, again, is a contraction in the fiscal deficit. Now, part of that equation will be remedied by higher tax collections; unfortunately, the other side of that equation is, of course, lesser spending, which isn’t going to happen. So, I believe they can taper to the extent that the fiscal deficit has contracted. I don’t think that they’ll be able to raise the Fed funds rate any time in the foreseeable future—3 to 5 years.

Jim: So, that would argue that stocks would be a better play.

Kyle: Unfortunately…because it feels like they’re making it the only game in town. It’s not your choice, but it’s the only answer though. [End transcript]

In the rest of this must-listen interview, legendary hedge fund manager Kyle Bass gives investors his most recent views on Japan, the impact and outlook for shale gas in the U.S., and a wide range of other topics.

If you would like to hear this full must-listen interview with Kyle Bass airing this Wednesday, CLICK HERE (http://www.financialsense.com/subscribe) to subscribe.

Kyle Bass, an American hedge fund manager, is the Founder of Hayman Capital. He received extensive coverage in the financial press for profiting $590 million by short selling the sub-prime mortgage bond market, before that market crashed. In 2011, Bass initiated a huge position in Greek sovereign debt through CDSs. Media reports were that he could profit up to 650 times his investment should Greece default on its debt obligations.

NEW TRADE IDEAS -SHORT EURUSD .AGAIN!!!! FAILED!!!!!

On Monday  i will place the following two orders

1) Sell 0.1 lot  EURUSD Market at  the opening of the Asian  markets   -S/l 1.3860 and t/p  1.31

04/11/2013 UPDATE-----> ORDER OPENED AT   1.3487

27/12/2013 UPDATE----->  STOP LOSS HIT

2) Sell EURUSD  limit  at  1.3600 . S/l  1.3850 t/p 1.27 GTC

27/11/2013 UPDATE: ------------> ORDER OPENED AT 1.36
27/12/2013 UPDATE----->  STOP LOSS HIT

3) Sell EURUSD  limit  at  1.3650 . S/l  1.3850 t/p 1.28 GTC

 05/12/2013 UPDATE: ------------> ORDER OPENED AT 1.3650
27/12/2013 UPDATE----->  STOP LOSS HIT

4) Sell EURUSD  limit  at  1.3690 . S/l  1.3850 t/p 1.29 GTC

06/11/2013 UPDATE: ------------> ORDER OPENED AT 1.3690
27/12/2013 UPDATE----->  STOP LOSS HIT

END OF OCTOBER P/L REPORT [ -200 PIPS] -THREE POSITIONS STILL OPEN

During   OCTOBER  I did only one  move  (SHORT EURUSD) which i stopped out .  Total loss -200 pips .I still have three open positions:

---> Long EURCHF -  still open at 1.2150 (s/l 1.20)

---> Long EURCHF- still open at  1.2375 (s/l 1.20)    

---> Long EURCHF - still open at 1.2360 (s/l 1.20)

SHORT EURUSD STOPPED OUT

WHERE 'S THE STOCK MARKET HEADED?LOOK AT THE FED 'S BALANCE SHEET

What's driven the ups and downs of the stock market over the last few years, you ask? Greg Weldon explains in his recent interview with Financial Sense Newshour that it all comes down to the Fed's balance sheet. To be exact, the two have a correlation (using the S&P 500) of nearly 90%!

Of course, driving the stock market higher doesn't exactly help those that aren't in the stock market; nor does it do anything for the average American's paycheck, as Weldon points out. Since the overwhelming majority of US citizens have very low equity in their homes (if they still have homes) or don't actually own any stocks, the so-called "wealth effect" the Fed has tried to produce has, economically speaking, been a little short on effects. Here we present a few key excerpts from Greg Weldon's recent interview with Jim Puplava airing next Tuesday for subscribers where he puts it all together.
Jim: What’s your macro look on the economy and the markets? Do you think economic activity is starting to pick up in the US?
Greg: When I look at the economy I see pick-up. I see numbers that look fairly robust in some areas, particularly in the housing sector; but when I look at the nominal levels, the percentage gains are exaggerated by the depths from where we are rising—the historical lows—and we are only rising to levels that in the past have been historic lows in previous periods of turbulence. So, we’re only getting back to normal recessionary levels in some of these housing numbers. Thus, it’s difficult to get too excited about that [since] gains in home prices, which again are recovery gains, are not new gains...[plus] that doesn’t put money into people’s pockets every two weeks as a source of new income. Neither does the stock market. So this is an important consideration when we take it to the next level, which is simply this: Without gains in wages, which is just not going to happen when you have chronically unemployed people for long periods of time that don’t count anymore. We all know the demographics around the unemployment report and how poor the labor market is because it’s not generating enough jobs to take down the chronically long-term unemployed. It’s not even creating enough jobs to meet population growth. So, you have a labor force issue, which prohibits any wage gains. Without that, you don’t have your wannabe reflation...but at the same time the liquidity the Fed is pushing in...is really gravitating toward equities specifically. Commodities are not even part of that anymore because we really have learned that this is not a macro-reflation that will generate wages, that will support a rise in the structure of inflation—that is just missing. So what happens is all this money flows straight into equities: equities breakout, managers are behind, no one trusts the rally and then, boom, you have a psychological issue where everyone’s plowing in and, to me, this pretty well defines what we’re seeing right now.

Jim: Are we experiencing a bifurcated economy? People invested in the market have done quite well, but the average American isn’t heavily invested in the market and still faces a lot of pressure on the job and wage front. If, then, the real economy isn’t growing at a strong enough pace while stocks continue to move higher, is there a worry of how long this will continue?

Greg: You have a massive divergence there…can it continue? Absolutely. It can continue while you’re seeing movement out of bonds and into stocks as well. You’ve seen rotation out of safe havens—gold and bonds—and into risk assets—stocks. This is what the Fed has wanted. They are getting exactly what they want. And why is that interesting? Because it’s the only avenue they have so, of course, they are going to protect it…this is the area that they can support the market—they’re going to continue to do that because it’s the only place they’re having any effectiveness in terms of that “feel good factor”. You don’t have it in housing the way you need it, you don’t have it in the labor market at all—you have it in equities. It does create that “feel good factor”—wealth does reflate to those that own equities and, again, that’s a bifurcated polarization of the wealth dynamic that is secular in nature in this nation…at the same time, it’s important to note what I said before and—this is critical—this is not putting money into people’s checking accounts every two weeks like wage inflation would.
So the risk factors out there are still very real and when you see the extension and re-ownership by the public of equities, I think that’s a troubling thought process for down-the-road. Near-term, looks to continue until frankly the Fed pulls the plug.

Jim: Greg, what do you do in a market like this? I think a lot of people have been surprised, as you’ve been talking about, whether you’re looking at housing, which finally began to come off some lows starting last year, you’re looking at an unemployment rate that’s come down because of the participation rate more than anything else, and yet the stock market keeps going up. I think people forget that when the Fed creates money and puts it into the system and artificially suppresses interest rates, they can’t necessarily control where that money will go. So if you were just looking at the economy or looking at the employment rate or looking at wages, which have been stagnant because of the high unemployment rate plus global competition, you would say, “Wow, this really isn’t something I’d want to invest in. This isn’t like the 80s and 90s when the economy was booming.” Yet, money has to find a place and it’s going to go where it’s treated well and if it’s the stock market, it’s going to be the stock market.

Greg: That’s a really great point you just made…there is risk here that the real economy is not peaking in the way the stock market is—this money is going directly into the stock market. One of my favorite charts that we produced is a correlation between the Fed’s balance sheet and the S&P 500, and it is really, really tight. You can see periods where the Fed’s balance sheet goes sideways—those are periods of turbulence and downside action in the US stock market. It’s that simple. Case closed.
If you were expecting the stock market to continue, you would think there’s a lot of opportunity in these beaten down commodities and that’s one of the areas we’re looking at actively right now.

( http://www.financialsense.com/contributors/greg-weldon/stock-market-fed-balance-sheet-correlation)

TRADE IDEA - PENIDNG ORDER SHORT EURJPY

I will place a pending order short  EURJPY AT  130.80 S/L 131.80 T/P 128 .Good till cancel

TRADE IDEA : SHORT EURUSD , s/l 1.3750 t/p 1.3380

I will  go short 0.1 lot  on the opening of the markets  sl 1.3750 tp 1.3380



UPDATE: ORDER OPENED AT 1.3560

END OF SEPTEMBER P/L REPORT [ -700 PIPS] -THREE POSITIONS STILL OPEN

During  August I did only one  move  (SHORT EURUSD) which i stopped out . I got also stopped out  from my  short GBPUSD which i had open for months . Total loss -700 pips .I still have three open positions:

---> Long EURCHF -  still open at 1.2150 (s/l 1.20)

---> Long EURCHF- still open at  1.2375 (s/l 1.20)    

---> Long EURCHF - still open at 1.2360 (s/l 1.20)

STOPPED OUT FROM SHORT EURUSD(-145 PIPS)

STOPPED OUT FROM SHORT GBPUSD (-555 PIPS)

Last Wednesday  i got stopped out  from my short  GBPUSD position  at 1.58

NEW ORDERS - SHORT EURUSD / LONG EURCHF -UPDATE

I will take the two following order  in the opening of Tuesday's asian session:

Short 0.1 lot EURUSD at market s/l 1.34 and t/p 1.27

Long  0.2 lots EURCHF at market s/l 1.20 and t/p 1.30


15/09/2013 UPDATE:  Position opened as follows:

Short 0.1 lot EURUSD at  1.3255

Long 0.1 lot EURCHF  at  1.2360

END OF AUGUST P/L REPORT [ -400 PIPS] -THREE POSITIONS STILL OPEN

During  August I did only one  move and closed my short EURJPY with a 400 pips loss. I still  have three open position

---> Long EURCHF -  still open at 1.2150 (s/l 1.20)

---> Short GBPUSD - still open at  1.5245 (s/l 1.58)    

---> Long EURCHF - still open at 1.2375 (s/l 1.20)

WWW.FXUNIVERZE.COM -CHECK THIS COOL SITE!

EURJPY POSITION STOPPED OUT -400 PIPS

NEW ORDER - SHORT EURJPY AT MARKET OPENING

I will sell 0.1 lot  EURJPY at Monday market opening. SL 132 and TP 124

UPDATE 12/09/2013: Opened position at  128

END OF JULY P/L REPORT [ +420 PIPS] -THREE POSITIONS STILL OPEN

During  July I did only one  move and closed my long USDJPY with a 420 pips gain. I have three open position

---> Long EURCHF -  still open at 1.2150 (s/l 1.20)

---> Short GBPUSD - still open at  1.5245 (s/l 1.58)    

---> Long EURCHF - still open at 1.2375 (s/l 1.20)

STEVEN COHEN HIS OWEN PRIVATE BRAVADO

Below is  an article about Steve Cohen published  on  Greenwich time.com

His investors are running for cover.He's seen at least nine of his trusted associates charged or implicated in a rapidly-metastasizing insider trading scandal, one that has cost his firm a record $616 million regulatory settlement and can be felt from hedge fund row on Connecticut's Gold Coast to Wall Street.

And the industry he has come to personify -- nimble when picking pharma stocks, soybean futures and derivatives -- can't seem to decide whether to take a long or short position on Steven Cohen, the reclusive and much-maligned founder of SAC Capital Advisors. 

While he has not been charged with a crime, Cohen was subpoenaed last month by the government to testify in front of a grand jury as part of its very public inquisition of the $15 billion Stamford hedge fund. 

Worth $9.3 billion, which has enabled him to acquire paintings by Picasso, Warhol and Jasper Johns, run a charitable foundation and live in relative sequestration on his sprawling Greenwich compound, Cohen is expected to invoke his constitutional right to remain silent.

But even the mighty Cohen might not be able to avert what some insiders say is the inevitable."If he is going to give all clients' money back, I'm surprised it's taken him this long," said Stephen McMenamin, a Cohen acquaintance who is executive director of the financial services trade group the Greenwich Roundtable.

 

From George Soros to Stanley Druckenmiller, McMenamin said there is a precedent of top hedge fund managers closing shop to outside investors, a scenario that Cohen ruled out in a recent letter to his employees.

"If he does, he's following in the footsteps of the greatest managers ever," said McMenamin, who is also a partner in the Greenwich-based alternative investments firm Indian Harbor LLC.

That's where the similarities would end for Cohen, whose peers didn't have the dark cloud of a full-bore investigation hanging over them. 

Cohen, 56, declined an interview request through his external spokesman, Jonathan Gasthalter, the main conduit for the hedge fund's PR machine that last year plucked communications guru Mark Herr away from damage control at bailout recipient American International Group.

"I would think he's thinking more about his neck than his public relations right now," said John Coffee Jr., a securities law professor at Columbia University. "I suspect he is legitimately concerned. You don't take the Fifth and expect it doesn't have some consequences."

His friends call him "Stevie."So do those who have never met Cohen, but speak of the bespectacled investing maven as if they are familiar acquaintances while the stock ticker scrolls beneath them on CNBC and Fox Business Network.

But when your name is bandied about in the same sentence as Ivan Boesky and Michael Milken, both of whom went to prison for securities fraud during the Gordon Gekko era of 1980s excess, an industry that is hard-wired to spurn media attention can begin to turn and disassociate itself.

"There's no question -- it's not good for the industry," an industry insider told Hearst Connecticut Newspapers on the condition of anonymity. "It does not help. The longer it goes on, the worse it gets." 

Investors are heeding the signs, withdrawing in excess of $2 billion from SAC since the scandal unfolded through what are known as redemptions.

One of the first to pull the rip cord was Titan Advisors, a Rye Brook, N.Y., asset management firm focusing on hedge funds.Multiple messages seeking comment were left for George Fox, the president and founder of Titan, which notified its clients it was abandoning its position in SAC at the end of 2012.Cohen is not without his unabashed adherents who are willing to buck the trend, however."You don't get much better than Stevie Cohen," said Ed Butowsky, founder of Chapwood Investments, a private wealth management firm based in Dallas with client money invested in SAC.If Butowsky had his druthers, he would steer more investment assets to Cohen's hedge fund, which he said has delivered three times the return as the "Oracle of Omaha" Warren Buffett with a third of the risk since 1994."The very thought that people want to trash Stevie Cohen, who is one of the great legends in portfolio management, because of some allegations, shame on them," Butowsky said. "If it was me and I had to live through this stuff the last three years, I would tell everybody to go jump off a boat."

Mathew Martoma won't be listing Cohen as a reference.Cohen's former protege is accused of pulling a Martha Stewart.Much like the domestic doyenne, who landed in the clink after dumping shares of the biopharmaceutical stock ImClone Systems based on an illegal tip, Martoma is awaiting trial for insider trading.

 

The 38-year-old former portfolio manager for SAC pleaded not guilty to charges that a doctor leaked confidential details to him about a clinical trial of an Alzheimer's drug, helping the hedge fund avoid $276 million in stock losses in the pharma companies Wyeth and Elan.

Martoma switched to one of the top white-collar defense attorneys in April, perhaps signaling a change in strategy or his willingness to snitch on his former mentor, Cohen, who himself has retained the services of the high-powered Manhattan law firm, Paul, Weiss, Rifkind, Wharton & Garrison LLP.

The government's investigation is said by industry insiders to be keying in on a 20-minute telephone conversation between Martoma and Cohen on the eve of a stock dump by SAC of the drug makers.

"So flipping Martoma is not only critical to going after SAC, it's critical to going after Cohen," said Coffee, also former legal adviser to the board of directors of the New York Stock Exchange.

Martoma might not be the toughest nut to crack -- it's been well chronicled that he fainted when the feds confronted him on his lawn in Florida to tell him he was under investigation for insider trading.

The scope of Cohen's legal troubles is expected to come into sharper focus in July, when the five-year statute of limitations for bringing insider trading charges runs out for stock transactions SAC made involving Wyeth and Elan.

The government could buy itself time by bringing charges against Cohen or SAC under the Racketeer Influenced and Corrupt Organizations Act, which Coffee said would extend the statute of limitations but require the approval of the U.S. Justice Department.Coffee said he was not privy to the details of the case being built."I'm not saying this is inevitable progression to indictment," Coffee said.

 

A second portfolio manager for SAC's Sigma unit in New York, Michael Steinberg, 40, was arrested March 29 on charges of insider trading in technology stocks Dell and Nvidia. Steinberg also pleaded not guilty.

Silent on the widening dragnet is a somewhat surprising figure, U.S. Sen. Richard Blumenthal, D-Conn., who, during his tenure as Connecticut's attorney general, called for stricter regulation of hedge funds.

Blumenthal declined to comment through a spokeswoman, who cited the ongoing investigation.

***

Cohen is still living "the dream."Characterized as a modern-day Medici, the Florentine family of aristocrats known for their art patronage during the Italian Renaissance, Cohen bought the Picasso masterpiece "La Reve" from Las Vegas casino mogul Steve Wynn in March for a $155 million ransom, the highest amount ever paid by a U.S. art collector.Wynn infamously put his elbow through the canvas of "La Reve," French for "the dream," while gesticulating and had it restored. The erotic portrait of Picasso's mistress incorporates the image of the artist's erect penis in her upturned head.

It is the piece-de-resistance of an art collection Cohen's acquaintances say rivals top museums such as the Certosa in Naples, Italy."There's a clear and deep art appreciation," said Dacia Toll, co-CEO and president of Achievement First, a network of urban charter schools in Bridgeport, New Haven and Hartford supported by the charitable foundation of Cohen and his wife, Alexandra.

Cohen has opened his 37,000-square-foot mansion -- opened is the operative word -- to the charter school organization and prospective donors on multiple occasions for dinner parties and brunch meetings.

Cohen's not-so-humble abode is tucked behind a perimeter wall pushing 9 feet in height, 3 feet taller than most of the stonewall applications received by the town, which requires anything above 6 feet to get a building permit.

There's a guardhouse and a wrought iron fence at the foot of the driveway to Cohen's 14-acre domain, which he shares with his wife and seven children, four of whom the couple had together. Two are from Cohen's previous marriage, which ended in divorce. She also has a child of her own.

The grounds of the compound boast a sculpture garden, two-hole golf course and a basketball court. It's aptly located on Crown Lane in backcountry Greenwich, nine miles from SAC's trading floor in Stamford.

Authorities from the town got a rare glimpse inside Cohen's pad in late 2008 when the tycoon applied for a variance to add about 1,000 square feet to the footprint of the mansion for a "his" closet. The variance was ultimately approved.

Cohen is not exactly keeping a low profile, annexing his real estate holdings in March to include a $60 million oceanfront estate in East Hampton. 

The annual real estate taxes on Cohen's Greenwich property are $190,000 alone, according to the local assessor's office.

"You can't accumulate that much wealth and be beloved," said a person who once inspected the house.

Cohen does not fit the coiffed-hair, square-jawed and sartorial-splendor caricature of a tycoon.

He's bald. He's stocky. And he's not known as an outdoorsman.

"There was no pretense of wealth at least in the way he was dressed. He could have been the mail clerk," said Jack Schwager, one of the few writers who has been granted an audience with Cohen.

The "Stock Market Wizards" author interviewed Cohen twice in 1999, spending a day at the side of the hedge fund manager when SAC's trading operation was located in a bunker-like space in Stamford, where the firm has been based since 1996.

"He was constantly flicking through different screens and looking at different markets," Schwager recalled. "I saw an excessiveness with his involvement with the markets and an all-consuming focus."

Schwager characterized Cohen's investing philosophy as a fluid one.

"He can change his opinion on a dime," Schwager said. "He was giving me all the reasons why he was bullish on the bond market. And the next time I was there he was giving me all the reasons why he was bearish on the bond market."

Cohen's proclivity for risk-reward situations can be traced back to his adolescence on Long Island, where he was said to have dominated his high school friends in poker. At lunchtime, the teenage Cohen would watch the ticker tape at a brokerage firm, Schwager recalled.

SAC, which celebrated its 20th anniversary in 2012, currently employs 1,000 people. Its headquarters, situated on Cummings Point near the serene waters of Long Island Sound, also houses lots of expensive artwork. The firm commands fees in the neighborhood of 3 percent of expenses and 50 percent of upside.

"The highest I've ever heard of," Schwager said.

Cohen has a Robin Hood complex.Not only does he stand to benefit from keeping the Sheriff of Nottingham at bay, so do dozens of nonprofit groups that rely on $50 million in yearly donations from the Steven and Alexandra Cohen Foundation, started in 2001.

 

Those organizations are standing by their man, including Stamford Hospital, which has received millions in funding from the foundation earmarked for wellness programs for underprivileged children.

"Steven Cohen has not been charged with any crime, much less convicted," said Dr. Edward Schuster, a cardiologist and internist who serves on the hospital foundation board. "We remain grateful for the Cohens' generosity and the great benefits it has brought to the city of Stamford and the children of Stamford. And we look forward to a continuing relationship with them for many years."With funding from the couple's foundation, the hospital was able to start a program called Tully for Teens that provides exercise opportunities and dietary education for at-risk youths.

 

The couple's generosity enabled the hospital to open a pair of 10,000-square-foot fitness centers at Stamford and Westhill high schools, according to Schuster, who said the private fundraising effort was unprecedented.

At the Tully Health Center, part of Stamford Hospital, the family funded a clinic for unprivileged children to see ear, nose and throat specialists, urologists and eye doctors who visit from Manhattan once or twice a month. The facility is called the Cohen Children's Specialty Center.

"We've been able to accomplish many things that we would not have been able to," Schuster said.

Cohen serves on the board of the anti-poverty Robin Hood Foundation founded by industry peer and fellow Greenwich billionaire Paul Tudor Jones. He is said to have taken a keen interest in the well-being of military veterans, donating $17 million to New York University to research and treat the effects of post traumatic stress disorder.

A lead gift of $5 million for the public park project along Stamford's Mill River corridor came from the couple's foundation. It will be used to build an outdoor skating rink and interactive fountain, expected to open in 2015.

"He's very approachable," said Milton Puryear, executive director of the Mill River Collaborative. "There's been a strong emphasis on the benefits to young people and children, particularly to those who don't have the means to take lessons, pay for lessons, buy or rent skates."Through their foundation, the couple gave $10 million over the last six years to Achievement First, helping to build charter schools in Connecticut."We have offered to put their name on the facility, in particular, or to highlight their contributions in some way and they are quite modest and have actually turned down a request to name a room or a facility," said Toll, the organization's co-chief executive, who met the couple through the Robin Hood Foundation.

Cohen is diversifying a different kind of portfolio.With his wife, he has contributed $500,000 to candidates on both sides of the political aisle since the 2007-2008 campaign cycle, according to the Washington, D.C., based Center for Responsive Politics.And when Cohen gives, he hedges, steering $28,500 each to the Democratic Senatorial Campaign Committee and the National Republican Senatorial Committee in 2007. 

 

A year before Congress took up financial regulation reforms, Cohen gave $2,300 to then-U.S. Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee and the namesake of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Cohen also gave $4,600 to U.S. Sen. Chuck Grassley, R-Iowa, in 2008, when he was ranking member of the Senate Finance Committee.

In 2006, Cohen hosted a fundraiser for then-Stamford Mayor Dannel P. Malloy, who is now governor. Filings with the state Elections Enforcement Commission show that Cohen's wife gave $375 to Malloy's gubernatorial exploratory committee in 2010.

"They are friends of the governor," said Andrew Doba, a spokesman for Malloy. "The governor has made keeping the good paying jobs in finance part of his economic development agenda, and, obviously, SAC is a part of that community."

State Sen. L. Scott Frantz, R-36th District, a venture capitalist from Greenwich, described Cohen as a highly intelligent and nice guy.

"I think he's totally devoted to running a very successful hedge fund," Frantz said. "They pay very, very high taxes to this state and, obviously, to the town."

Sometimes you have to lose the battle to win the war.SAC could face additional fines and possible censure if the firm is found not to be in compliance with rules prescribed by the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority.At the time it reached a $616 million settlement with the government over the Elan and Dell trades, the company defended its conduct in a statement issued by Gasthalter."We are committed to continuing to maintain a first rate compliance effort woven into the fabric of the firm," the company said.That was before SAC's head of compliance, Steven Kessler, was subpoenaed on the same day as Cohen.

The government is said to be scrutinizing whether SAC's compliance standards applied to the "center book" of investments personally managed by Cohen, and if they didn't, why not.Some say that the government would be wise to take a different tack."It would look like you caught John Dillinger with a machine gun in his car out in front of the Federal Reserve bank and you charged him only with double parking," Coffee said.

neil.vigdor@scni.com; 203-625-4436; http://twitter.com/gettinviggy

Read more: http://www.greenwichtime.com/news/article/Steven-Cohen-His-own-private-bravado-4589161.php#ixzz2VhfDOMAY

THE HUNT FOR STEVE COHEN

Below is article about Steve Cohen published  on vanity fair 

http://www.vanityfair.com/business/2013/06/steve-cohen-insider-trading-case

With arrest after arrest in a massive, seven-year insider-trading investigation, U.S. Attorney Preet Bharara is getting closer to the biggest fish of them all: Steve Cohen, founder of SAC Capital, the $14 billion hedge fund, who some regard as the most successful stock picker of his time. C.E.O.’s have fallen, lives and companies have been upturned, but Cohen has thus far escaped. Bryan Burrough and Bethany McLean go deep inside Bharara’s probe—and SAC’s org chart—to reveal just how much blood is in Wall Street’s waters.

THAR SHE BLOWS Steve Cohen has become a focal point of a seven-year probe into insider trading, led by U.S. Attorney Preet Bharara. So far, 71 people have been convicted or admitted guilt. 

Twenty-five years ago Wall Street, and much of America, was transfixed by a sweeping set of insider-trading investigations centered on the greatest financier of the age, junk-bond king Michael Milken, of Drexel Burnham Lambert. Day after day, week after week, month after month, stories of U.S. Attorney Rudolph Giuliani’s relentless investigation dribbled out to the press. One by one, Giuliani picked off Milken’s minions, confronting them at their homes, handcuffing them at their offices, pulling them before secret grand juries, indicting a few, pressing for evidence that Milken had broken the law. It all took on an inexorable quality. In their hearts, most everyone knew that Milken was going down sooner or later—and he did, paying more than $1 billion in fines and spending 22 months in prison. He was banned for life from the securities industry, and his firm was dismantled.

Twenty-five years later it’s all happening again. Once more a relentless U.S. attorney, this time 44-year-old Preet Bharara, has seemingly targeted the billionaire investor Steve Cohen, founder of SAC Capital Advisors, the $14 billion hedge fund based in Stamford, Connecticut. One by one, Bharara has picked off onetime SAC traders and analysts, confronting them at their homes, pulling them before grand juries, bringing criminal cases, and pressing them for evidence that Cohen has broken insider-trading laws. So far Cohen has not been charged with anything, but there is the same sense that Bharara, like Giuliani before him, has too much invested in all this to lose. “If Steve Cohen gets off,” one hedge-fund manager observes, “he will be the O. J. Simpson of insider trading.”

In almost every way, though, today’s scandal surpasses the one that brought the Roaring 80s to an end. There have been more arrests, many more convictions; C.E.O.’s have fallen, lives and companies have been ruined, all in a campaign that has increasingly put one man in the government’s crosshairs: Steve Cohen, thought to be the most brilliant trader of his generation.

Simply reading the headlines this spring, one could be forgiven for being a bit confused. In mid-March, after years of scoffing at every suggestion any of its traders might have done something untoward, SAC agreed to pay, without admitting guilt, the largest fine in the history of the Securities and Exchange Commission, a stunning $616 million, to settle charges of insider trading in only two trades. Some on Wall Street called it a victory for Cohen, who paid a pittance—for him—to make a messy situation go away. Others were not so sanguine, observing—correctly—that blood was finally in the water, that an S.E.C. fine did nothing to curtail the ongoing criminal investigation, which has already led to guilty pleas from and convictions of at least five onetime SAC employees.

Cohen seems determined to ride it all out with sheer bravado. A week after the settlement, news broke that he had paid the casino owner Steve Wynn an astounding $155 million—a record sum for a U.S. collector—to buy Picasso’s Le Rêve (which Wynn had accidentally put his elbow through in 2006). Days after that revelation Cohen paid $60 million for a 10,000-square-foot, seven-bedroom mansion with ocean views, on Further Lane in East Hampton. Taken together, it all had a “Let them eat cake” quality, as if Cohen were waving his billions in the government’s face, daring it take him on.

Their looming showdown draws on themes of money, privilege, and class that define the era. Steve Cohen isn’t just another hedge-fund billionaire; he is the hedge-fund billionaire. He doesn’t live in just another Greenwich, Connecticut, mansion; he lives in the largest of them all, complete with its own two-hole golf course and Jeff Koons’s Balloon Dog sculpture adorning the driveway. Inside, the walls are festooned with paintings from his fabled collection of Impressionist and contemporary art, which includes Francis Bacon’s Screaming Pope, hanging just outside his bedroom. Doughy and clerk-like, Cohen is nevertheless the Gatsby of our age, a middle-class kid from Long Island who caught the gambling bug fleecing his high-school pals in all-night poker games. Today he tosses around his winnings in transparent attempts to join the social elite that’s never quite accepted him and his 48-year-old Puerto Rican second wife, Alex, whom he met through a dating service.

On Wall Street everyone knows the Cohen legend. The awkward kid who stood outside Merrill Lynch offices in college studying the green digital stock prices as they slid silently across screens in the window, finally deducing patterns no one else could see. The years as a wunderkind at little Gruntal & Co. during the 1980s, screaming at assistants who couldn’t keep up with his flood of trading orders.

Then came the formation of SAC at the dawn of the hedge-fund age, in 1992, its returns so enormous Cohen could demand as much as double the industry average 1.5 percent management fee and take 50 percent of investment gains, as opposed to the usual 20 percent. The jaw-dropping 70 percent returns he piled up riding the high-tech wave of 1998–99, then the even more mind-boggling 70 percent he earned betting against the very same stocks in 2000, inspired BusinessWeek to crown him “The Most Powerful Trader on Wall Street You’ve Never Heard Of.”

Cohen never wanted the attention, even after buying his Greenwich mansion and moving SAC into its new brick-and-glass headquarters on Long Island Sound. Taking a page from Milken’s book, he bought the copyright to photographs of himself—so the press couldn’t run them. He dodged reporters for years, until SAC’s name began popping up in stories about this new insider-trading investigation, at which point, in 2010, he sat for a series of exclusive interviews with Vanity Fair. “I feel like Don Quixote fighting windmills,” he groused. “There’s a perception, and I’m trying to fight that perception. I find it offensive that they lump SAC into these articles. I really do. The press, I mean, they don’t understand what the hell—they don’t understand what they’re writing about.”

Yet even Cohen would admit that this “perception”—that SAC had to be doing something illegal to make such astounding returns—had been around for a while. In the 1990s, SAC earned a reputation for pumping brokerages for advance notice of analyst recommendations, a rumor that was never proved. In the early 2000s it was known as a fund that hoovered up all available information on every conceivable stock, to the point where some of it crossed the line into illegal insider information, another suspicion that was never proved. In response Cohen beefed up SAC’s compliance department (its internal police) and began hiring a new breed of trader. The stereotypical Wall Street trader, the hard-charging, foulmouthed kid from Staten Island, began to disappear from SAC’s halls; in his place came Ph.D.’s from Harvard and Stanford, traders always referred to as “super-smart,” who took jobs at SAC over offers from Google or Microsoft. In his interviews with Vanity Fair, Cohen all but admitted SAC had once steered too close to legal boundaries, necessitating a change in its culture. “Things were different then,” he acknowledged. “This was a learning process.”

But the whispers about Cohen continued to spread as SAC grew to become one of the world’s largest hedge funds, with $14 billion under management.

What you’ll hear from SAC’s supporters or Cohen’s friends is that of course the government is trying to get Steve Cohen. Why? Well, anyone who has earned those kind of returns, who charges the highest fees in the industry, who is personally worth over $10 billion, and who has done all that by trading, well, he must be using inside information to be that good, that rich.

No doubt some of the whispering is fueled by envy, as well as personal distaste—Cohen, people who know him say, can turn nasty on a dime—but SAC courted it by assembling what is by any measure one of Wall Street’s greatest information-gathering machines. It’s fueled, many believe, by the exorbitant fees SAC pays scores of Wall Street firms for processing its trades and other services; whereas other hedge funds trade via computer at fractions of a penny per share, SAC still does it the old-fashioned way, paying three to five cents, making it, by wide agreement, the largest payer of fees on Wall Street, $400 million a year by some estimates. That kind of largesse, some charge, spurs a blizzard of tips from Wall Streeters eager to ingratiate themselves with Cohen. In addition, former SAC employees have started at least 31 other funds, in which Cohen often invests, and the expectation is that the former traders will continue to feed SAC information, which is why one SAC alumnus calls Cohen “the Godfather.”

At one point, in 2008, Cohen was so proud of his information-gathering techniques that an SAC marketing document summarized his trading strategy with one word: “Edge.” But when asked about this in a 2011 civil-suit deposition, Cohen said, “I hate that word.”
What makes the rumors linger is SAC’s business structure. Splayed before five screens at his workstation on SAC’s library-quiet trading floor, Cohen himself manages only about $2 billion of the firm’s capital; the rest is handled by a hundred or so portfolio managers, known as P.M.’s, each of whom leads a small team, usually of two or three analysts, known as a “pod.” They can always see Cohen, thanks to the “Steve Cam,” a tiny camera trained on the boss sitting at his 50-foot black desk, divided into eight trading stations.
SAC is a notoriously cutthroat environment; those who don’t perform don’t last. Each pod typically manages hundreds of millions—although some manage more—and is required to pass its best ideas to Cohen, usually at a Sunday-night teleconference; if Cohen makes money off the idea—a process known inside SAC as “centerbooking” or getting “tagged”—the pod members receive a 4 percent cut.
There’s a high hurdle, though: when asked in the deposition what the threshold for a good idea was, Cohen responded, “You don’t want to hear an idea that you’re going to make 5 percent in a year on. I don’t think anyone would embarrass himself by bringing me an idea like that.”
Those who believe SAC has, at least in the past, trafficked in dirty information, including onetime SAC traders who spoke to Vanity Fair on background, say this high-pressure structure spurs desperate P.M.’s to resort to the use of inside information—and combined with the potential to make a fortune, this can lead to temptation. And where there’s temptation, of course, people will cross the line. As a former SAC analyst puts it, “What happens if the puppet master doesn’t want you to have a moral compass?”
The very same structure, however, tends to insulate Cohen, who can say he doesn’t know the sources of information behind his traders’ tips. “Steve knows his business model protects him,” says the former SAC analyst. “There’s not a single hedge fund that hasn’t somewhere, sometime, gotten sketchy info. But this is different. You think Steve wants you to have inside information but doesn’t want to know you do. Why do it? Why did A-Rod take steroids? Because it’s worth it.... The payout is huge and you can get swayed. What would you do for, say, 20 percent of $276 million? You do stuff. You fucking do stuff. You can’t be in this job without navigating a gray line constantly.”
Tom Conheeney, SAC’s president, counters that it is “absolutely false” to say that the business model is designed to protect Cohen. “The structure has nothing to do with ‘insulating’ Steve,” he says. “We believe the multi-manager model is the best model to produce attractive, risk-adjusted returns over time.”
“Activity that was acceptable no longer is. Steve made the appropriate adjustment,” says Anthony Scaramucci, an SAC investor, who runs SkyBridge Capital. “The government has had years to prove its case. If they could, they would have done it by now.”
Many of the safeguards came after the S.E.C. initiated the current insider-trading investigation, in 2006. That year, for instance, SAC instituted a rule forbidding any P.M. from using a so-called expert network—a company that provides industry “experts” to help traders analyze stocks—that talked directly to company insiders. SAC says it was also one of the first hedge funds to establish a separate compliance department led by a well-respected professional, and it has steadily strengthened its compliance program over time, increasing its total compliance personnel from 3 in 2005 to 36 today.

Shot Across the Bow

The legal waves lapping at Steve Cohen’s feet today spread from the dropping of a single pebble into regulatory waters almost seven years ago, on August 22, 2006, a hot, hazy summer afternoon in Lower Manhattan. It was then, according to The Billionaire’s Apprentice, the excellent new book by Anita Raghavan, of the New York Times Dealbook site, that a lawyer named John Moon walked into the S.E.C.’s New York regional office at the World Financial Center with suspicions about a client’s trades. Moon worked for the giant Swiss bank UBS, which processed trading for any number of hedge funds, large and small. A month earlier one of its newest and smallest clients—a fund called Sedna Capital Management—had embarked on an incredible run of success, nearly doubling its $2 million in capital with barely a handful of trades. Moon suspected Sedna was benefiting from “cherry-picking,” an age-old Wall Street scheme in which a fund manager allocates his most profitable trades to a friend or relative, in this case Sedna, in order to avoid scrutiny. When S.E.C. attorneys Googled Sedna, they realized they might be onto something big. It was run by Rengan Rajaratnam, whose older brother, a rotund Sri Lankan named Raj Rajaratnam, headed one of the world’s largest and most successful hedge funds, the $7 billion Galleon Group.
The S.E.C. began examining Raj’s trades. Soon federal prosecutors and two teams of F.B.I. agents in New York were on the case. In time the overall investigation came under the supervision of Preet Bharara, the politically ambitious U.S. attorney for the Southern District of New York. Born in India, Bharara came to the United States when he was two years old. After graduating magna cum laude from Harvard, he attended Columbia Law School and eventually joined the organized-crime unit of the Southern District, where he helped bust up New York’s Colombo and Gambino crime families. Next he worked for New York senator Chuck Schumer, who got him the job as U.S. attorney.
Federal investigators discovered that Raj Rajaratnam sat at the center of a vast insider-trading network stretching from New York to Taiwan. It took three long years of subpoenas, wiretaps, and grand juries, but once Rajaratnam himself was hauled away in handcuffs, in October 2009, many of his partners in crime became familiar names on Wall Street, their taut faces appearing regularly on CNBC. There was Roomy Khan, a chatty Silicon Valley trader infamous for allegedly “enslaving” one of her maids. And Danielle Chiesi, a fading beauty queen who gleefully fed tips to Rajaratnam. Most infamous of all was Rajat K. Gupta, a Goldman Sachs board member and former C.E.O. of the global consulting giant McKinsey & Company, who was convicted of funneling tips to Rajaratnam about deliberations inside the vaunted Goldman boardroom itself. In the three and a half years since Rajaratnam’s arrest, federal prosecutors have charged 77 people with securities-law violations, most of them insider trading; 71 have pleaded guilty or been convicted.
SAC’s name popped up in the early months of the Galleon investigation, all the way back in 2007, according to Bloomberg.com, when F.B.I. agents successfully “flipped” a now infamous Wall Street trader named David Slaine, who provided prosecutors with several examples of what he believed to be insider trading at SAC. During 2008 the names of former SAC traders began appearing on government wiretaps.
The investigation worked like this: if someone was overheard swapping inside information with, say, Roomy Khan or Danielle Chiesi, there was a good chance his phone would be tapped. Traders who were overheard actively swapping inside information—call them “big fish”—might be marked for prosecution. But “little fish,” it appears, were often seen to be most valuable as potential informants. Between January and April 2009, F.B.I. teams led by agents David Makol and B. J. Kang approached three of these little fish, confronted them with evidence of their own wrongdoing, and easily gained their cooperation. In doing so they moved the investigation away from Galleon and toward a group of new targets, including SAC. The first of the little fish was an unemployed 35-year-old named Wesley Wang, the son of Chinese immigrants.
In November 2008 investigators received the go-ahead to place taps on Wang’s phones. A more unlikely “Patient Zero” for the SAC case would be hard to imagine. When the F.B.I. came calling, he hadn’t worked at a hedge fund for months. “Wes,” sighs someone who knows him well, “was a schlub.” After dropping out of the University of California, Berkeley, he worked at three hedge funds: Whitman Capital; Sigma Capital, an affiliate of SAC; and Trellus Management, where he was employed until September 2008. Court filings say Wang knew little about finance and got through the hedge-fund doors only because he was fluent in Mandarin, which made him useful in translating data on Chinese companies. To stay inside, he admitted to the F.B.I., he had resorted to passing inside information.

An F.B.I. agent approached Wang on January 7, 2009, and he agreed to cooperate within a week. If Wes Wang was a mediocre analyst, he proved to be a superstar informant, naming at least 20 people he believed were involved in insider trading. Prosecutors would eventually gush that Wang “was the key witness that was able to open the door to literally dozens of other witnesses.” He provided “the government with answers to questions it did not even know to ask,” a prosecutor told a court in early 2013. “He has provided so much information that the government has not yet been able to investigate all of it for want of manpower.”
What little detail is available on Wang’s illegal exploits suggests he was alternately resourceful and a bit pathetic. In one job he boasted that he had an excellent source inside the Target department-store chain; it turned out to be an assistant store manager in Oakland whose tips were, as might be expected, useless. Apparently Wang had better success chatting up a neighbor, a Cisco Systems executive, whose information he was able to trade to others. Among those Wang named was his onetime boss, Doug Whitman, of Whitman Capital, about whom he testified at a three-week trial last summer; Whitman was eventually sentenced to two years in prison.
But perhaps the most useful source Wang led the F.B.I. to was a man he had once worked for as a college intern, Karl Motey. Motey, who was then 44, had been a respected Silicon Valley semiconductor analyst for years before opening his own small firm, the Coda Group, in Los Altos, California. Some of the insights he fed his hedge-fund clients, however, crossed the line into inside information, as Motey revealed to Wes Wang one day in February 2009. What Motey didn’t know was that Wang was wearing a wire. Two months later F.B.I. agent Makol walked up to Motey in the parking lot of his gym, where Motey had just finished a workout. The two repaired to a coffee shop where, when confronted, Motey quickly admitted his guilt and agreed to cooperate. Inside a week he was on a plane to New York, where prosecutors briefed him on their unusual plan: Motey was to be the first government informant inserted into the strange world of “expert networks.”
These companies—about 40 existed in 2009—had begun springing up after the S.E.C. in 2000 issued the Regulation Fair Disclosure rule, known as “Reg F.D.,” which mandated that public companies issue “market-moving” information to all investors at the same time. Until Reg F.D., many companies had given select analysts advance notice of upcoming earnings in private conference calls.
Once companies clammed up, hedge funds and other big investors were obliged to do more of their own detective work. Expert-network firms rose to fill the vacuum. On paper, they connected traders with outside “experts” who could offer insights about a given company; in practice, investigators suspected, these insights often amounted to inside information. Early on, they decided to focus on a single expert-network company in Silicon Valley: Primary Global Research, known as P.G.R., which had a reputation for passing information of borderline legality.
The F.B.I. instructed Karl Motey to telephone P.G.R. consultants, tell them he was setting up a new hedge fund, and secure their services. It worked like a charm. Thanks in large part to Motey, in the fall of 2009 the government was able to ask a judge for a wiretap on the phone lines used by P.G.R. and almost 100 of its clients. That allowed the government to compile cases on at least 10 people, including P.G.R. consultants and their sources of illegal information at several companies, such as Dell. Roughly one of every eight convictions in the Galleon-SAC probe, in other words, was the result of Motey’s work.
“Look at the minnows who ended up swallowing the sharks,” someone close to the case observes. “Motey is Moby Dick. Anything that gets close to him, he traps and eviscerates.”

A Hindu, a Jew, and a Catholic Walk into a Hedge Fund …

But Karl Motey did more than simply bring down P.G.R. More than any other single informant to that point, he brought the government within striking distance of SAC. In this he was joined by another of the government’s Bay Area informants, a savvy 53-year-old Malaysian named Richard Choo-Beng Lee, known as “C.B.,” who had been a high-tech analyst for several funds, including SAC, before starting his own Silicon Valley-based fund. His new partner, Ali Far, however, had previously worked closely with Raj Rajaratnam at Galleon, and when investigators overheard the two swapping tips they confronted both Lee and Far. Both agreed to cooperate.
Lee pointed the government toward another very senior ex-SAC trader. After he left SAC, Lee worked briefly for a hedge fund called Stratix, which was co-founded by Rich Grodin, who had joined SAC in the very early years—so if anyone could help the government understand the firm’s culture, it would be he. (Cohen invested in Stratix, which closed in late 2007.) Grodin’s calls with Lee were among those being wiretapped, according to a government filing. In the fall of 2009, Grodin abruptly closed down his second hedge fund, Quadrum, although he was never charged. Wall Street insiders wonder if this means he may be cooperating with the government. Lee was less successful when F.B.I. agents, in hopes of planting a mole inside SAC, had him contact the company in a vain attempt to get a job there. In his deposition, Cohen admitted that SAC had rejected Lee “because we were suspicious of his intentions [We] had heard rumors he was wearing a wire.”
The wiretaps on P.G.R., which the government secured mainly with the help of the reliable Karl Motey, helped raise the blinds on two other insider-trading rings, which led to both SAC alumni and even a current, high-level SAC trader. The first centered on a pair of former SAC traders who were best friends, Noah Freeman and Donald Longueuil, along with a third man, Samir Barai, who ran his own fund, Barai Capital Management, in New York. Freeman and Longueuil, along with their fiancées, were active athletes, participating in triathlons and cycling events together. The three were so close that Longueuil served as best man at Freeman’s 2009 wedding, and Freeman promised to serve as Longueuil’s best man at a wedding that was scheduled to take place in February 2011 but never would.
Barai, Freeman, and Longueuil—who jokingly called themselves the Hindu, the Jew, and the Catholic—had been gathering, swapping, and trading on inside information since at least 2006, when they were all at other firms. They called their exchanges “data dumps” or “data smackdowns,” and Barai later told the F.B.I. that they’d mark them on their calendars as a “threesome” or as “don, sam, noah—sex.” They continued once Freeman and Longueuil joined SAC, in 2008, Freeman in the Boston office, Longueuil in New York. The trio developed a series of valuable sources who had contacts inside several tech companies. One, Freeman later told the F.B.I., was a consultant named Doug Munro, who ran a research firm called Worldwide Market Research and, according to both Freeman and Barai, had inside information on Cisco. Munro, they said, had an e-mail account called juicylucy_xxx@yahoo.com, and he’d send Barai an e-mail saying “lucy is wet” when he was supposed to check the account for new information. (Munro has not been charged.)
But the trio’s best source was a consultant at P.G.R. named Winnie Jiau, whom they nicknamed Winnie the Pooh. She had valuable—and illegal—sources of her own, and they paid Jiau as much as $10,000 a month as well as pelting her with little gifts, from lobsters to gift certificates for the Cheesecake Factory restaurant chain. (At one point Freeman e-mailed his secretary, “Can you please send (12) lobsters to Winnie? I know you hate her but we have to do this.” His secretary replied, “Sure thing. I hope she gets sick from the lobsters.” The secretary didn’t get her wish, because the lobsters didn’t get picked up when they arrived. “Typical Winnie to leave 12 lobsters to die at FedEx,” the secretary wrote in a follow-up e-mail. “She has no heart.”)
The Freeman circle began to fall apart in 2010, when first Freeman and then Longueuil were fired by SAC for poor performance. Longueuil kept trading on his own while Freeman fled Wall Street altogether, taking a job teaching economics at the Winsor School, a prestigious all-girls academy outside Boston. The real blow, however, came on the evening of November 19, 2010, when The Wall Street Journal published online a lengthy story describing how the government investigation was beginning to focus on P.G.R. At his New York apartment, Longueuil panicked. That night, he used two pairs of pliers to tear apart a flash drive and two computer hard drives where he had stored his illegal information. He then slid the components into four ziplock bags, and a little before two A.M. he left his building and spent the next 40 minutes walking behind garbage trucks, throwing each of the little bags in the back of a different truck.

It was too late. The weak link in the Freeman circle turned out to be one of Samir Barai’s assistants, a young man named Jason Pflaum. Because Barai was hearing-impaired, Pflaum handled many of his calls, and, as luck would have it, some were with P.G.R. experts who were being listened to by investigators on the Motey-enabled wiretaps. Confronted by investigators a month before the Journal story ran, Pflaum had given up everyone, even leading the F.B.I. to audiotapes of incriminating calls with Winnie Jiau. After reading the Journal’s article, Barai texted Pflaum. “Problem is this scope is said to focus on the use of so-called expert network firms Fuuuuuuck.” He then told Pflaum: “Shred as much as u can.” Barai himself not only went into his office and began shredding, but also asked Pflaum to leave his laptop with his doorman so Barai could pick it up and delete its contents.
Three weeks later, Noah Freeman walked into the Winsor School’s parking lot and found B. J. Kang, of the F.B.I., waiting for him. Within days Freeman too admitted everything and agreed to cooperate, becoming one of the government’s most valuable sources of information to that date. Not only did Freeman agree to secretly tape Longueuil incriminating himself—it was on a Freeman tape that investigators learned of Longueuil’s garbage-truck expedition—he also gave detailed debriefings on SAC and Cohen. He told Kang that insider trading in the hedge-fund business was “ubiquitous,” and said trafficking in corporate secrets was expected of him while at SAC. According to a memo Kang wrote his superiors, “Freeman and others at SAC Capital understood that providing Cohen with your best trading information involved providing Cohen with inside information Freeman pitched to Cohen many trading ideas over the 18 months he was at SAC Capital and some of the trading ideas involved dirty information.”
(“Freeman’s assertion that portfolio managers were expected to pass on improper information is categorically wrong,” says the SAC president Conheeney. “I am confident that he didn’t believe this while he worked at SAC, and that he knew he wasn’t supposed to get, trade on, or share inside information. In fact, he testified under oath that he went to great lengths to hide his illegal behavior from us.”)
Most everyone Freeman fingered is going to prison. Longueuil pleaded guilty and got two and a half years. After Freeman testified against Winnie Jiau, a jury gave her four years. Freeman himself is still awaiting sentencing but is hoping for no jail time because of his cooperation.

Rule Number One: There Is No E-mail List

The second insider-trading ring Karl Motey helped uncover involved a huge, byzantine group of analysts and traders at a trio of hedge funds. This theater of the scandal sprang dramatically into view on Monday, November 22, 2010, three days after Donald Longueuil’s garbage-truck episode. That morning, just after the market opened, black unmarked cars assembled at a parking lot across the street from One Landmark Square, in Stamford, Connecticut, which was the home of a hedge fund named Diamondback Capital. About a dozen armed F.B.I. agents stormed in and began sweeping through both floors of the office. They did the same at two other hedge funds, Loch Capital, in Boston, and Level Global, in Manhattan. Both Diamondback and Level were multi-billion-dollar funds run by prominent ex-SAC people. Loch, run by twins Tim and Todd McSweeney, was a smaller, technology-stock-focused fund, but it was a big name in the tech world and had investments from firms such as Citigroup and AIG.
The next day, SAC sent a letter to its investors, telling them that the government had issued “extraordinarily broad” subpoenas to a number of investment managers, including SAC, which said that the subpoenas “don’t shed much light on whom or what the government may be investigating.” The firm added, “Neither the subpoena nor any other information of which we are aware suggests that anyone at SAC has engaged in any wrongdoing.”
SAC’s all-clear signal would turn out to be extremely premature.
The raids were a shock to everyone on Wall Street, but the targets all seemed to make sense. At Loch, nervous investors had been yanking money from the fund, which once had more than $2 billion in assets, ever since the news broke that Steve Fortuna, co-founder of S2 Capital and a close friend of the McSweeneys’, had pleaded guilty to insider trading. At Diamondback, Richard Schimel, one of the founders, was married to Steve Cohen’s sister, Wendy. Diamondback was started by Schimel, along with two other people, Larry Sapanski and Chad Loweth, who had left SAC in 2005. The word on the street was that the parting had not been amicable, and Cohen had put no money into Diamondback—so, people speculated, who better to inform on Cohen than Schimel? Level Global also had close ties to SAC. The fund was founded in 2003 by David Ganek and his former analyst Anthony Chiasson, who had made their reputations at SAC. By the end of 2010 the fund had gained almost 90 percent since its launch, versus the S&P’s 27 percent, and also had more than $4 billion under management.
But the speculation and gossip was mostly wrong. Indeed, although the trail through Diamondback and Level would end up reaching into the very high ranks of SAC, the route was not what anyone had expected. In fact, at Diamondback, the fund’s founders were not named on the search warrant, and the government would show no interest in them.
Unbeknownst to the outside world at the time of the raids, two former analysts, one at Diamondback and one at Level Global, were the ones cooperating with the government. Spyridon “Sam” Adondakis, who worked at Level from 2006 to 2010, was approached in October 2010 by F.B.I. agents as he was leaving a lunch in Midtown Manhattan. They asked to speak to him in a nearby park, and they played a recording of him that they’d gotten from the P.G.R. wiretaps. (The government would later credit Motey with pointing them to Adondakis.)
Adondakis, then in his early 30s, agreed to cooperate—and to record his friends. Among them was a guy named Jesse Tortora, who had started working for Diamondback in 2007 as an analyst for a technology-focused portfolio manager named Todd Newman. Tortora and Adondakis had become friends earlier in the decade when they both worked in San Francisco for a stock-research firm called the Prudential Equity Group, a division of the big insurance company. Adondakis later said about Tortora, “We shared all of the information that we got on pretty much everything.”
The group gradually expanded to include several Prudential analysts and their friends: a former Dell employee named Sandeep “Sandy” Goyal and Fayad Abbasi, another analyst. Abbasi’s roommate in San Francisco was a technology analyst named Jon Horvath. Tortora also started talking to a client named Ron Dennis, a research analyst at the mutual-fund company Waddell & Reed.
Eventually, both Dennis and Horvath got jobs as analysts for portfolio managers at SAC. Horvath worked for Mike Steinberg, who had joined SAC in the early years. In fact, Steinberg, who is reportedly close to Cohen, had worked for Rich Grodin. When Prudential closed down its equity-research unit, the rest of the group soon migrated to New York, too. Adondakis got a job at Level Global working as an analyst for Anthony Chiasson; he and Abbasi, who landed at the mutual-fund company Neuberger Berman, shared an apartment in Tribeca. Abbasi hired Goyal as an analyst. As for Tortora, he’d gotten to know the McSweeneys at Loch Capital, and they referred him to their friend Todd Newman, at Diamondback, which Tortora joined in the fall of 2007.
This was a world where business relationships seem to have been indistinguishable from friendships. A defense lawyer later said about the group, “They traveled together, they partied together, they ate together, they drank together, they rented homes in the Hamptons together. They were very, very close.”
In 2009, Tortora e-mailed a group that included Abbasi and Adondakis: “Rule number one about email list, there is no email list, fight club reference. [He was referring to the 1999 movie Fight Club, in which Brad Pitt says, “First rule of Fight Club is: you do not talk about Fight Club.”] Rule number two, only data points can be sent, no sarcastic comments. Enjoy. Your performance will now go up by 100 percent in 09 and your boss will love you. Game theory, look it up.”

The group shared a lot of legitimate information, obtained by going to conferences and speaking with research analysts. But they also shared a lot of inside information. Tortora and Adondakis both got information from P.G.R. consultants. The group also had its tentacles into other big companies, including Dell and another technology company, Nvidia. Tortora later told a jury that Horvath had a contact at Sun Microsystems, and he passed that contact’s information along to the group. He also said that since Dennis preferred speaking on the phone to e-mail, “as a matter of practice, I would talk to Ron very frequently, maybe every other day.”
When asked by a prosecutor, “Did Mr. Dennis provide you with confidential information during your time at Diamondback?,” Tortora responded simply, “He did.” (Dennis has not been charged with any wrongdoing.)
The information sharing, it seems, was a way of life in the high-stakes world of trading technology stocks, which were evaluated not on whether the company was a good long-term investment but on whether it was going to please investors in a given quarter. “We came to the conclusion that that was the way they [people who traded technology stocks] did business,” says one person close to events. “They were doing it for so long that it became normal.”
“The line had been blurred,” says another hedge-fund executive. “It became extremely fast and furious, and all that mattered was who you were and what you knew.” He adds, “It was: What data points do you have? That was your Edge.”
The trade that would reach all the way into the highest ranks of Level Global and up to powerful portfolio managers at SAC certainly involved Edge. Goyal, who had worked at Dell, developed a contact in Dell’s investor-relations department who began to pass along what Tortora testified was “very specific” inside information on Dell’s revenues and profits. Goyal would then send the information to Tortora, who would then pass it along to the rest of the group.
Both Tortora and Adondakis later told a jury that the reason they gathered inside information and passed it to their friends, such as Horvath, was so that the analysts could relay it to the portfolio managers for whom they worked. The trade that would cause so much trouble for so many happened in late August 2008. Dell’s second quarter had finished at the end of July. It took time for the company to figure out what its revenues and profits were in a given quarter, but the Dell contact started telling Goyal that the company’s G.M., or gross margin—a measure of profitability—would be less than investors were expecting. In the volatile world of trading technology stocks, even a small “miss”—profits that are less than investors are expecting to see—can send a stock plummeting. Goyal told Tortora, and Tortora later testified that he had told others, including Adondakis.
Indeed, the morning of August 5, after Goyal had had a late-night phone call with the contact, he called Tortora. While they were on the phone, Tortora e-mailed Newman bullet points from the conversation, including that it looked as if the gross margin was going to be lower than investors were expecting. “The Dell from Sandy [Goyal]?” asked Newman. “[Yes] on with him now,” Tortora responded. That day, Newman began to build a short position in Dell, according to trial testimony.
Tortora also immediately forwarded that same e-mail to others, including Adondakis and Horvath. At Level Global, Chiasson eventually built a far bigger short position, at least in part due to Tortora’s information, according to the government. Adondakis testified that Chiasson knew exactly where the information was coming from. A few days after getting Tortora’s e-mail, Adondakis testified, he met with Chiasson and a senior analyst at Level Global named Greg Brenner in Chiasson’s office. They talked about the information, and Brenner said that, if the numbers Adondakis was getting were right, the Dell trade was the best idea at the firm.
At another meeting in August, Chiasson, according to Adondakis, warned others that the large short position was based at least in part on information from a contact, so no one should discuss it outside the firm. As August 28, the date when Dell would announce its earnings, drew nearer, Chiasson wanted frequent updates, and it appears that he was updating his partner, David Ganek, too, but there is no proof Ganek knew where the information was coming from.
Over at SAC, they were also talking Dell. On August 18, Horvath, three minutes after getting another update from Tortora, called his boss, Mike Steinberg, according to the government. A minute later, Horvath sent Steinberg an e-mail. The headline: “Pls keep the DELL stuff especially on the down low.” Steinberg returned, “I will.” The government later alleged that Steinberg began to short Dell’s stock that day.
Even when you have inside information, trading technology stocks ahead of earnings isn’t a sure thing in the way that buying a stock before a big merger announcement is. It still takes work—and some luck—to figure out how the market will react to the numbers. The information is just Edge. It’s not certainty. And so, everyone was getting nervous. On August 22, a trader at Diamondback texted Adondakis. “Dell’s getting bigger,” he said, meaning that Chiasson was increasing the size of the bet. “I’m wearing depends now,” Adondakis replied.
At SAC, Cohen himself was paying attention to the trade, because of a particular problem: another portfolio manager, Gabe Plotkin, was on the opposite side of Steinberg’s trade. Although Plotkin didn’t join SAC until 2006, he is a superstar there. He manages more than $1 billion of SAC’s capital and is hugely profitable for the firm. “The guy who is killing it at SAC Capital,” Reuters called him in 2011.
On August 26, Steinberg wrote to Horvath and Plotkin, in an e-mail with the subject line “DELL,” “Guys, I was talking to Steve [Cohen] about DELL earlier today, and he asked me to get the two of you to compare notes before the print [meaning before Dell officially announced its earnings], as we are on opposite sides of this one. Gabe—we think GMs [gross margins] are at risk this qtr … ” “I do think that is the biggest risk,” Plotkin wrote back. Horvath responded, “I have a 2nd hand read from someone at the company—this is 3rd quarter I have gotten this read from them and it has been very good in the last two quarters. They are saying GMs miss by 50–80 bps [basis points] … Please keep to yourself as obviously not well known.” Steinberg responded, “Normally we would never divulge data like this, so please be discreet. Thanks.”
The S.E.C. later alleged that 24 minutes after getting Horvath’s e-mail Plotkin began selling his Dell position and, as a result, was able to avoid $2 million in losses.
A day later, Steinberg e-mailed Horvath again. With the subject line “Dell action,” he asked, “Have u double checked JT [Tortora] this week?” Horvath responded, “Yes he checked in couple days ago, same read no change.” Steinberg shorted more Dell, according to the government.
When Dell’s number came out, the gross margin was even lower than what Goyal had told Tortora—so the stock began plummeting and eventually fell more than 13 percent.
Chiasson wrote to Adondakis, “Nice call.” Indeed: according to the government, Level made more than $53 million in illegal profits on that one trade. At Diamondback, Newman, who had taken a much smaller position, made almost $3 million for the fund.
Ron Dennis wrote to Tortora, “You da man. I owe you.”
Tortora checked in with Horvath. “You there on Dell,” he asked. Horvath responded, “nice man, you nailed it.”
The government later alleged that Steinberg’s fund earned $1 million in illegal profits.
Ultimately, the government indicted Chiasson, Newman, and Horvath not just for the big Dell trade but also for conspiring to swap information on other stocks, including Nvidia. After a month-long trial, a jury found Chiasson and Newman guilty after deliberating for just two days. (Both men are appealing the verdict.) Six weeks before the trial, in late September 2012, Horvath pleaded guilty to insider trading in both Dell and Nvidia. In his plea, he said that he provided information to his portfolio manager—Mike Steinberg—who then traded on his tips.
Although the judge ruled that there was an “inference” that Ganek “was aware of the source and nature of this information,” Adondakis testified that he had never told Ganek his source. Ganek was not charged. Immediately after the raid, he hired an outside law firm to do an investigation and told investors that he was “highly confident that my conduct in leading the firm and its investment process was lawful and ethical at all times,” but he couldn’t say the same for Chiasson. On February 11, 2011, he sent a letter to investors telling them he was shutting Level Global down, which he called a “very difficult and painful personal decision.”

Diamondback ultimately paid a big price, too, even though the senior people were never implicated. The firm eventually struck a non-prosecution agreement with the government, meaning that it wouldn’t be held criminally liable, and it paid the government $9 million, which is small for an insider-trading fine. But a combination of some rocky performance and the continued torrent of bad news about the industry-wide insider-trading investigation finally caused investors to say, Enough. At the end of 2012, Diamondback announced that it was closing its doors, too.
As for Loch Capital, soon after the raid the McSweeneys reportedly told investors that they were not the focus of the investigation, but by the end of the year Loch Capital had closed, too.
In late March, Mike Steinberg was indicted for insider trading on Dell and Nvidia. He is—by a long shot—the person closest to Cohen who has been caught up in the probe.
Once Steinberg’s name started appearing in connection with Horvath, many had the sense he was next. Including Steinberg. Which is why, according to Reuters, he jumped from hotel to hotel for weeks, hoping to avoid the embarrassment of being arrested in front of his wife and two children, while his lawyer tried to arrange a deal wherein prosecutors allowed him to turn himself in. This tactic had worked for Chiasson; when F.B.I. agents showed up at his Upper East Side Manhattan apartment, the doorman handed them a note, instructing them to call Chiasson’s lawyer. (Chiasson turned himself in later that day.)
Steinberg was not so lucky. At six A.M. on March 29, agents arrested him at his $8 million Park Avenue apartment. He had just returned from a trip to Florida, while his family, thankfully, had stayed behind. Steinberg’s lawyer, Barry Berke, says, “We are preparing for a full-fledged and full-throated defense, and we have every expectation that he will be vindicated.”
Gabe Plotkin, who also allegedly traded Dell shares at SAC, has not been charged with any wrongdoing, but even the mention of his name is potentially a much bigger problem for the firm. Not only is he a big deal in terms of the profits he makes, but, as one person familiar with SAC says, Plotkin has also been in front of investors as one of the faces of the firm. And SAC is defending him vigorously. “Gabe Plotkin has not been accused of wrongdoing and has done nothing wrong,” says an SAC spokesperson. “He has built a successful career on a commitment to sound fundamental research.”
Maybe so. SAC insists that its compliance system is extraordinary and emblematic of the new SAC. But the first line of defense against insider trading is supposed to be the portfolio managers, who are required to go to the compliance lawyers immediately if they even suspect they’ve gotten inside information. Another hedge-fund executive, when asked what the compliance lawyers should have done after seeing Horvath’s e-mails, laughs. “After the lawyer had a heart attack or lost his lunch, you mean?”
And so, what some others in the industry can’t understand is why the Dell trade wasn’t a red alert for SAC’s lawyers long before the government got there.

Implausible Deniability

In the fall of 2012, just after Chiasson and Newman’s trial began, the government unveiled yet another shocker. On November 20, the S.E.C. filed a complaint against a former SAC portfolio manager named Mathew Martoma, alleging that he’d orchestrated the largest insider trade in history—$276 million in illegal profits and avoided losses, more than five times the size of the Dell trade—by getting advance information about the clinical trial of an experimental Alzheimer’s drug. He allegedly used that information to persuade Cohen to take a big long position in the stocks of the two drugmakers—the Dublin-based Elan, and Wyeth, a New Jersey company (eventually acquired by Pfizer)—that were developing the drug. In July 2008, a week before the results of the clinical trial were due out, Martoma helped persuade Cohen to do a 180 and not only sell his huge stake in the two stocks but bet against them with big short positions.
In late 2011, F.B.I. agents confronted Martoma on the artificial front lawn of his $1.9 million, 8,000-square-foot home, in Boca Raton, Florida, while his wife, Rosemary, took their three children inside. Agent Matthew Callahan pressed him to become an informant against Cohen; when he refused, the agents leaned on him, reminding him of the damning evidence they had against him and of how much time he might spend away from his family if he were sent to prison (as much as 45 years). Martoma then fainted, but, soon on his feet, he remained defiant.
“The charges unsealed today describe cheating coming and going,” Bharara told the press on November 20, 2012, the same day the S.E.C. also filed a complaint. “Specifically, insider trading first on the long side, and then on the short side.” It is this trade that accounts for the lion’s share—more than $600 million—of the $616 million fine that SAC agreed to pay the S.E.C.
In the narrative of how the government continued to pick away at SAC, this particular case came out of left field. The investigation into the Elan trade was not begotten by Karl Motey, or Wes Wang, or Richard Choo-Beng Lee. It did not involve Primary Global Research, or even a technology stock, for that matter.
But in the narrative of the evolution of SAC—and, perhaps, the evolution of insider trading—Martoma makes perfect sense to Wall Street insiders. He didn’t drop off a big bag of cash to get advance word of an impending merger or pay big commissions to get an early call on a stock from a Wall Street analyst. He was a smart, hardworking guy who did an enormous amount of legwork—and who also allegedly used his expertise to cultivate a source who then gave him that extra bit of Edge.
Born Ajai Mathew Mariamdani Thomas to Indian immigrants, Martoma was raised in Florida and graduated summa cum laude from Duke in 1995. According to The New York Times, he studied biomedicine, ethics, and public policy, worked briefly at the National Human Genome Research Institute, in Washington, and spent a year and a half at Harvard Law School before dropping out to go to business school at Stanford. He worked at a small Boston hedge fund called Sirios Capital, and then joined SAC in 2006. Well coiffed and always dressed in neatly pressed slacks, he was “articulate, well put together, smooth, and calm,” according to someone who knows him, who adds, “You can see how he would be persuasive in a credible way.”
Elan, the company that got Martoma in trouble, had a history of controversy, “decades of accounting fraud, overstated clinical trials, and blowups,” says a hedge-fund manager, and indeed, in 2005, Elan had to pay the S.E.C. $15 million for violating the anti-fraud statutes of the federal securities laws. But by 2007 it was making a comeback thanks to excitement about an experimental Alzheimer’s drug called bapineuzumab, or “bapi,” that it was developing with Wyeth. Results from the drug’s clinical trials, which would show whether it was safe and effective, were due in the summer of 2008. On the Street, Elan’s stock generated strong feelings. Detractors said the company simply couldn’t be trusted. On top of that, experienced health-care traders are always suspicious of companies that claim success with Alzheimer’s drugs, because they think the area is rife with pipe dreams.
By 2007, Elan’s stock was “a battleground,” says another trader. “People were getting into fights at medical meetings. Guys were getting really violent, not in a physical way, but verbally.” And it was a battleground within SAC, because the other health-care pods there wanted not to own the stock but to sell it short, according to one person familiar with the situation. The dissenters included a health-care pod run by David Munno and Benjamin Slate.
But Martoma remained an enthusiastic buyer of Elan and Wyeth—he included Elan on the list of his best ideas that he submitted to Cohen—and Cohen “centerbooked” them, meaning that he bought their stocks in the “Cohen account.”
Perhaps not surprisingly, Martoma was not well liked within SAC. “A lot of guys hated him,” recalls the person familiar with events. “They thought he was cocky, he had Steve’s ear on this giant trade, and he didn’t talk to anyone about it. People thought he was sneaky and selfish.”

But none of that—the skepticism of his fellow portfolio managers, the sketchiness of the situation—seemed to matter to Cohen, who was with Martoma, and in a huge way. According to the government, SAC accumulated more than $700 million worth of Elan and Wyeth stock, almost $400 million of which was held in the Cohen account.
The government would later allege that it wasn’t just Martoma’s knowledge of this industry or his hard work that led to the giant long position. Rather, he had cultivated a relationship with Dr. Sidney Gilman, a neurology professor at the University of Michigan—and the chairman of the committee that was monitoring the bapi clinical trial. Martoma had met Gilman through an expert-network firm called the Gerson Lehrman Group, and SAC wound up paying him $108,000 in total for his insights. The government alleges that Gilman, who came to regard Martoma as a “friend and a pupil,” began leaking positive information from the clinical trials to him as early as 2007, even once sending him non-public data labeled “For Your Eyes Only.” (“Gilman made a tremendously bad judgment and he’ll live with that,” says his lawyer, Marc Mukasey.)
Throughout the summer of 2008, Elan’s stock continued to soar. But the smart money didn’t believe bapi was going to pan out, and they couldn’t figure out why Cohen was long. “We were all saying, Why did SAC take a position this big? What the fuck does he know that we don’t?” says another trader. The dissent within SAC reached a fever pitch, too. On March 26, 2008, Munno and Slate sent Cohen an e-mail that read, “ELN, (important, please read) negative reads from company and other buysiders.” It listed reasons why they were concerned. Cohen forwarded the e-mail to Martoma, who responded, “I read the message. Nothing worrisome here. Let me know when you are free to discuss in detail.” Cohen stayed long. In an instant message to another SAC trader, he wrote that Martoma was expecting positive news from the clinical trial, and he was the one “closest” to the situation. “Closer,” says a former SAC trader, can be a euphemism for having inside information.
On June 17, Elan and Wyeth announced the preliminary results of the clinical trial. The headlines were positive, and although skeptics thought the data was sketchy, both stocks shot higher still. After that, Cohen “indicated he would no longer consider any investment ideas in Elan or Wyeth” from Munno and Slate, according to the S.E.C. Final results from the clinical trial were due on July 29.
At some point in late June, Gilman started getting even more information about the drug’s progress because he was selected to present the final clinical-trial results. In the end, the news wasn’t good, although the companies tried to spin it positively. It turned out that patients taking bapi over a long period of time didn’t improve. On Sunday, July 13, Martoma and Gilman spoke for about an hour and 40 minutes. Four days later, Gilman received a PowerPoint from Elan in an e-mail labeled, “Confidential, do not distribute.” It contained detailed information about the results of the clinical trial. Gilman sent the PowerPoint to Martoma, according to the government, who then called him to request the password needed to open the encrypted file. On the morning of Sunday, July 20, Martoma e-mailed Cohen. He asked, “Is there a good time to catch up with you this morning? It’s important.” Cohen sent his cell-phone number, and at 9:43 A.M. the two spoke for about 20 minutes.
“Every time there is a fraud, SAC says, We have amazing compliance!” observes another hedge-fund manager. “But the only question that matters is: Were the compliance people on the phone that Sunday morning? If they don’t show up for that, who cares that there are a million people in compliance?”
The following Monday, July 21, Cohen’s head trader began selling SAC’s huge stakes in Elan and Wyeth, according to the S.E.C. He did his best to do so in a way that wouldn’t be detected inside or outside SAC. Or as the head trader told Martoma in an e-mail, “Obviously no one knows except me you and [Cohen].” By July 29, the date of the announcement of the clinical-trial results, SAC had a big short position in Elan and Wyeth.
On July 30, the first trading day after the companies disclosed the negative trial results, Elan’s stock fell about 42 percent and Wyeth’s stock dropped about 12 percent. The government alleges that by selling, and then shorting, SAC was able to avoid $194 million in losses and make another $83 million in profits. That year, Martoma was paid a $9.4 million bonus.
In the fall of 2008, the regulator for the New York Stock Exchange noted the unusual trading leading up to the announcement of the results. According to Bloomberg, the S.E.C. figured out how much money SAC had made and began sending out subpoenas, requesting phone records and trading data, and looking through every phone call made by someone with an Elan connection to someone at SAC. They found Gilman and Martoma and compared the dates of the phone calls with those of SAC activity on the stocks.
In the hedge-fund grapevine, there’s another theory floating around: Gilman was very active in speaking to hedge funds and had a reputation for being too chatty, according to one source. The speculation is that a trader who was facing legal problems on another trade turned the government on to Gilman. In any event, after Gilman was contacted by the F.B.I. in the summer of 2012, he agreed to give testimony in exchange for not being prosecuted.
In 2010, Martoma was fired from SAC for poor performance. An SAC employee called him a “one trick pony with Elan,” according to the government. As of this writing, he evidently continues to refuse to cooperate, saying he is innocent. Recently he changed lawyers, causing insiders to speculate that he intends to fight.
But it is hard to find a lawyer or hedge-fund trader familiar with the government’s allegations who understands why SAC would agree to pay such a big fine if the firm believed in Martoma’s innocence. (A source familiar with SAC’s thinking says that the firm settled simply to remove the uncertainty.) The government’s hope, of course, is that Martoma will flip and hand them Cohen’s head on a silver platter, thereby reducing his own sentence. Cohen’s supporters claim that, in light of the clear incentives for Martoma, he simply doesn’t have the goods on Cohen. Cohen won’t discuss it, and the firm has offered a number of defenses for its sudden change of heart on Elan and Wyeth.
There’s also an argument that it simply doesn’t make sense that a guy as smart as Steve Cohen, a guy who knows that the government has been watching him for years, a guy who already has more money than God, would ever take the risk of using inside information on such a huge trade.
No, it doesn’t make sense—unless you believe that Cohen, when faced with the choice of winning or losing on a big bet, simply couldn’t stop himself from choosing to win. Just as in the old fable of the scorpion and the frog, that’s his nature.
The question remains whether the government can make a case against Cohen, much less prove to a jury, beyond a reasonable doubt, that Steve Cohen is guilty of insider trading. But maybe that doesn’t matter, because, in what is arguably the most important way, the government has already won. In February, investors asked to withdraw $1.68 billion (nearly 30 percent of SAC’s investor funds), and more is expected.
“You have to understand, all Steve Cohen cares about is that important people think that he is the world’s greatest trader,” says someone who once knew him well. “And he is already damaged goods. A lot of what he has worked for has been taken away already.”