Sheelah Kolhatkar discusses the investigation of billionaire hedge-fund trader Steven A. Cohen. She says the ways Wall Street elites accumulate wealth often negatively affect the rest of the country.

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This is FRESH AIR. I’m Dave Davies in for Terry Gross, who’s off this week visiting family. Remember when you made your first 10 million? It’s a ridiculous question for most of us, but to the most successful Wall Street hedge fund managers that’s just not a lot of money. Our guest, Sheelah Kolhatkar, writes that in 2006, the lowest-paid person on the list of the top 25 earning hedge fund managers made $240 million just that year. One of the top earners was Steven A. Cohen, whose firm was at the center of a massive insider-trading scandal Kolhatkar writes about in a new book.

It’s a story of a hedge fund managers spreading cash around to get information and government investigators running wiretaps and leaning on traders to help them crack down on what they suspect is widespread cheating in the financial sector. And it’s a story of inequality in financial markets and the economy and what that means for the country.

Sheelah Kolhatkar is a staff writer at The New Yorker, where she covers Wall Street, Silicon Valley and politics. Her writings also appeared in Bloomsberg (ph) BusinessWeek, New York, the Atlantic and The New York Times. Her new book is “Black Edge: Inside Information, Dirty Money, And The Quest To Bring Down The Most Wanted Man On Wall Street.”

Well, Sheelah Kolhatkar, welcome to FRESH AIR. First, tell us about this guy, Steve Cohen. What made him distinctive and unique?

SHEELAH KOLHATKAR: Well, Steve Cohen is a legendary figure on Wall Street, largely for his prowess as a trader. So he made billions of dollars, one of the largest fortunes in the United States, almost completely on the basis of his ability to sort of sit in his chair, look at the market screens and trade based on his gut and what he saw was going on. And, you know, he has the lifestyle to reflect all that. He lives in a 36,000-square-foot house in Greenwich, Conn. There’s an ice rink and a Zamboni for the ice rink. He decorates his office and his home with artwork of the sort you’d expect to see in the Museum of Modern Art.

And, you know, he really has a sort of rags-to-riches story that people in the financial world love. He grew up very middle-class in Long Island. They were certainly not poor, but they were not wealthy. And I think that growing up, he was surrounded by a lot of affluence in Great Neck. And he was motivated early on to make money. He was a very, very talented poker player in high school. And then he went off to Wharton, studied business there. And then he launched his hedge fund, SAC Capital, in 1992 with $25 million and very quickly achieved enormous success.

DAVIES: There are a lot of jobs in the financial sector, and it’s confusing to people. There are bond traders and stock traders and people who are in – work for investment banks and private equity people. Steve Cohen made his fortune with a hedge fund. What is a hedge fund?

KOLHATKAR: Hedge funds were originally conceived as these very sort of bespoke products that catered to wealthy investors. So if you were a very rich person, you know, a CEO of a company, you had a vast fortune, you were trying to figure out how to manage all that money, you might have parked a slice of it in a hedge fund where the idea was that it would be sort of protected from the general swings of the market. So you would be paying very high fees to a hedge fund manager, and in exchange you were granting that person flexibility to sort of invest the money however they saw fit.

And because hedge funds only accepted money from very wealthy and sophisticated investors, they were given a longer leash by the regulators to take risks in the market. They were allowed to borrow money to invest at much higher levels than a regular mutual fund, for example. They were allowed to short stocks, which is essentially borrowing a stock and selling it and betting that it will go down. It’s actually a very high-risk activity. Not everyone does this. But hedge funds, because they were only taking money from investors who could afford to lose the money, they were given this extra freedom. And in exchange, they charged very high fees.

And, you know, over time they came to really dominate the financial market. They were so successful and made so many people so wealthy that they have become this very dominant force. And in fact, what they do affects everyone.

DAVIES: Right. So what was originally these kinds of companies that would – you’d park some of the money as a hedge against a market downturn – became a huge thing in and of itself. And they’re just – they’re traders. They trade in everything and get big returns and charge fees for it. You write that when it was at its height, when it was – you know, had – what? – $15 billion that it was managing, his own money and other people’s money, that there was a feeling in the business on Wall Street that these guys had to be cheating, using inside information to beat the market. Why did people think that?

KOLHATKAR: Well, right from the first moment that Steve Cohen was operating his funds – so he started in 1992 with $25 million – he was generating these enormous returns – 30, 50, 70, 100 percent a year. And that went on and on. And by the time I became interested in this story, SAC Capital had grown into this enormous success on Wall Street, had made many people very wealthy. But they had only had one year when they lost money, which was 2008.

So people did start to wonder – how is it possible that a fund of this size had never lost money aside from this one year, 2008, which was, as you recall, the financial crisis and really was just sort of a disaster in the market? So, you know, questions and rumors circulated around this firm for years, even though many of Steve Cohen’s peers admired him and tried to emulate him.

And, you know, a lightbulb really went on for me when it became clear that the FBI was looking very closely at him. There had been this huge sort of crackdown on insider-trading going on for several years. But at one point in November of 2012, a prominent former portfolio manager who worked for Steve Cohen was arrested. And for me as a reporter, that’s when something sort of clicked and I thought, oh, my goodness, the government is about to go after one of the most powerful men on Wall Street.

DAVIES: So people thought that they were engaged in insider-trading. For those who

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