The past week “has not been kind” to Steven Cohen, the ball-breaking, art-collecting founder of the $15bn hedge fund SAC Capital Advisors, says Fortune. Last Friday, yet another of his employees was hand-cuffed at dawn for alleged insider trading, bringing the total to eight.
The financier, Michael Steinberg, is no minnow: he’s one of Cohen’s closest and longest-serving lieutenants. After years of pursuing their billionaire big fish, the prosecutors’ net appears to be closing ever more tightly around him, although SAC says that neither it nor Cohen have been accused of any wrongdoing.
Cohen has made a killing betting on the ebbs and flows of markets. But even he must have been taken aback by the dramatic reversal in his fortunes, says New York Magazine. A fortnight ago, SAC was riding high, having struck a $600m deal with the Securities and Exchange Commission to settle insider-trader allegations “and make the case go away” (see below).
Cohen celebrated with some “post-settlement retail therapy”: splashing out on a $155m Picasso painting and a $60m East Hampton mansion. Then came the setbacks. First, a judge refused to wave through the settlement, saying he needed more time to study it; then Steinberg was arrested.
An “unimposing presence” away from his beloved trading desk, once behind it, Cohen “is a snarling and aggressive trader, revered and feared across Wall Street”, says the Financial Times. His regime at SAC is notoriously tough: win and you get rich; lose and you get fired.
“He liked putting a team together and watching them destroy each other,” an ex-employee observes. It was an effective strategy. Cohen’s fund, which at its peak accounted for 3% of all trading on the New York Stock Exchange, has earned its investors more than $12bn in profits, even after demanding “an unheard of” 50% in fees.
Cohen grew up in Great Neck on Long Island. His father made ladies’ dresses; his mother taught the piano. She thought him “smart but lazy”, he later told The Wall Street Journal. It was always assumed that his younger brother, Donald (now an accountant) would be “the financial success of the family”.
As a teenager, Cohen worked at a local grocery store, but quit when he realised he could make more money – hundreds of dollars at a time – playing poker. At the University of Pennsylvania he hosted games four or five times a week. No-one was surprised when he took his first Wall Street job on the arbitrage desk of Gruntal & Co in 1978.
After cleaning up in the 1980s bull market, he left in 1992 to set up SAC with $25m. Despite the suspicions that have dogged his career, “Cohen… is a masterful trader, perhaps one of the greatest”, says The New York Times. Colleagues cite his “supernatural” talent for “reading the tape”. He’s obsessed with markets. “If I had one wish for Steve, it’s that he dies at his desk,” says one former SAC senior manager. He must hope so too.
Pressure mounts as the allegations pile up
A guarded man, “even by the paranoid standards of the hedge fund world”, Steven Cohen rarely gives interviews and gags employees with “fearsomely worded” non-disclosure agreements, says Dan McCrum in the Financial Times. Even so, the stories around him are legion.
As well as tales of tantrums within the pressure-cooker environment of SAC (where Cohen works with “a camera constantly trained on his face to shout commands at underlings”), there are colourful vignettes of his private life. His second wife, Alexandra, gave him an ATM one Christmas. A father of seven, he missed the birth of his last child while stuck to his trading desk.
Doubtless Cohen can handle those stories, says The New York Times. It’s the other kind he doesn’t like. And although he has never been formally accused of wrongdoing, “the questions have returned again and again”.
It was his first wife who first made allegations of insider trading against him, claiming in a 2009 lawsuit (in which she sought $300m) that he’d been engaging in the practice in the 1980s. A judge dismissed her claims as “little more than rumour and speculation”.
Other judges have similarly tossed out claims of “dirty tricks”, with Cohen extracting an apology from his accusers. In the latest probe, now into its sixth year, investigators seem to have uncovered evidence suggesting SAC’s record was indeed “too good to be true”, says the FT.
But Cohen nonetheless avoided becoming enmeshed in the scandal – until last December, when he was accused of direct involvement in an illicit scheme run by SAC Capital trader Mathew Martoma, which netted $276m.
Last week’s swoop on Steinberg piles on more pressure. In a marked departure from previous staff arrests, SAC immediately issued a supportive press release, describing Steinberg as “a man of integrity”, notes Bloomberg.
Some see that as significant. “It’s time for a little wager,” wrote a correspondent to New York Magazine: “who flips first? Steinberg or Martoma?”