As Black Edge author Sheelah Kolhatkar looks at the financial universe, there is a noticeable disturbance in the force. While Wall Street was at one time a society built upon partner capital and a fundamental economic mission, a new ethos has arrived. In many respects, this is on display in the seemingly gaudy display of power being exhibited by Steven A. Cohen. The founder of now defunct SAC Capital currently runs free, opening up a new hedge fund after enduring a grueling insider trading scandal that put those under his employ in jail. Such problems don’t appear to bother Cohen, who avoided both a New York FBI interrogation and criminal insider trading charges in the widely watched case that is largely the basis for the Showtime cable drama “Billions.” As New Yorker staff writer Sheelah Kolhatkar notes in a NonCorrelated podcast interview, Cohen, who paid a $1.2 billion fine, really didn’t see his life materially change in the wake of the insider trading case.
Cohen represents a benchmark in Wall Street history, as the ascendance of the trader over the investment banker is a loud one
On several levels, Cohen represents a benchmark in history, the epitome of a societal trend. In one regard, he points to the transformation of Wall Street from the gentlemanly investment banking culture of responsibility from those with their own skin in the game to a trading culture using other people’s money to generate vast sums of wealth. Certain components of the aggressive, activist trading culture want immediate gratification where the end sometimes justifies the means.
This trend, which some say can be benchmarked to launching in earnest in 1998, is now mature. The subtle investment bank culture that was focused on building for future generations still exists today, as the vast majority on Wall Street abhor criminal behavior. The difference is those voices are more often muted and their goal of building a strong, equitable society appears a now quaint notion that has been vanquished by the culture of the riverboat and a quarterly bonus mentality.
As a middle-class outsider new to the nuanced sanctum of the Manhatten societal elite, Cohen’s outbidding an investment banker for a suburban mansion, offering to flip a coin to determine ownership, is just one of the tales Kolhatkar tells from an intimate perspective that provides such context.
In the book Black Edge,Sheelah Kolhatkar provides readers the point of view from both the eyes of prosecutors and hedge fund executives, looking at all angles with a curious dispassion examines facts and lets the chips fall where they may. She follows the travails of Preet Bharara, former US Prosecutor for the Southern District of New York, considered the “Sherrif of Wall Street.”
Bharara is head of the most powerful and independent Federal legal jurisdiction in the country – proudly referred to by New York insiders as the “sovereign district.” He built an excellent track record at prosecuting public corruption cases and attacking one particular type of Wall Street crime. Independent hedge fund traders such as Cohan were part of a narrow group “terrified” by criminal insider trading prosecutions. But Cohen somehow escaped Bharara’s grasp.
Sheelah Kolhatkar On Why didn’t Bharara prosecute Cohen? “They just didn’t have it”
The question lingers: Why didn’t Bharara close the deal with Cohen as New York prosecutors did with SAC Capital portfolio manager Matthew Martoma, who is currently serving a nine-year prison term for insider trading?
“They just didn’t have it,” Kolhatkar says of the evidence, noting in the interview if she were in Bharara’s shoes the same decision not to prosecute Cohen would have been made. Cohen instead agreed to pay a massive fine, but it didn’t impact his lifestyle much if at all, Kolhatkar observes, leaving open the question of deterrence being in place.
A favorite Kolhatkar tale is that when she saw Cohen at a Manhattan art event shortly after spending millions on modern art adding to his nearly $1 billion collection following the SEC fine. “Look at you. You’ve won,” she exclaimed to the victor, to little affect.
Cohen’s rather attention-grabbing art purchase was viewed in some circles as a sign of defiance only eclipsed by his rather loud goal to raise $20 billion and start a new hedge fund — which would set an industry record.
Cohen is setting benchmarks in several respects. Not only was he crafty enough engage in legal maneuvers that stonewalled investigators, but he waves a highly visible flag that he will be open for business January 2018 and, as Sheelah Kolhatkar said, he has not paid a meaningful price.
What message does this send to a sophisticated criminal element at large with the means to pay for anything?
This is the larger trend. Has the aggressive minority trading culture on Wall Street, benchmarked by an untouchable flaunting of power, reached a new height. Or is this an apex ready for mean reversion? That is difficult to determine at this point.
Listen to the interview here or below.
The NonCorrelated podcast is dedicated to looking at all sides of issues while attempting to do so without political or economic bias, a triat of the top hedge fund managers. The podcast starts with interviews of general interest book authors and industry leaders in the first half, and in the second half discusses deeper noncorrelated investing strategy issues.