4 who is steven cohen . He built up an a enormous personal for tune on the basis of his incredible skill for trading. So he had a strong instinth for the stock market. He would sit down and look at the way stocks were trading and believed to have an incredible sense of how to ride the waves in the market and make money. He has this very compelling almost rags to riches story. He grew up very middle class and long island. His family has less money than a lot of others around him. He felt a sort of hunger to become rich. He started playing poker in high school. Very quickly built up a for tune. He has a mansion in connecticut, helicopter rides, works of art. He became an object of extreme envy. Sac. His initials. E embodied the firm. Theres a moment you say in your book he wouldnt talk to you. Tell us about that. I had spent several years reporting this book. I went about doing that the i had a lot of Court Documents interviews with people and i tried to convince him to sit with me. Of course i would have loved to talk with him. By the time the story you reach its conclusion he had won the legal case and thought he may have a compelling reason to talk now. E beat the system. I heard he was going to attend an art auction. I met with his staff. They always said maybe. But they never said no. So i ambushed him. I knew it was a powerful moment for me because i felt like i knew him so well at this point. I had spoken to dozens of people who had worked with him, family members. We had a brief exchange, and he left as soon as he figured out who i was, he said, i dont think i can really talk to you, and sort of ran away. He looked very relaxed. He arrived just before the auction was set to begin, which i thought was interesting because he is so important in the art world. Hes one of the biggest and most important modern art collectors in the world. He knew that they would never start without him. Hes p i knew he was selling a painting out of his collection. He said, oh no, i am selling. He went to the auction, and a few minutes later he paid 140 million for a sculpture. Brian let me stop you. Lets look at a little piece of video when he paid 141 million for. Watch this. [video clip] a man raises his arm. A man clinches his fist. Man is the indissoluble unity and the absolute source of his movements. Brian how could that be worth 141 million . [laughter] sheelah it is worth whatever someone is willing to pay for it. Thats how the market works. It is interesting because i think coen is recorded to have purchased at least two of the sculptures for that range. He bought one prior to this one, i think that was pointing man. Another one called chariots, as well. I think part of the reason the price has become so elevated for these particular works of art is because there is a very small group of Hedge Fund Billionaires have become competitive about art collecting. I think it happens to a lot of them that they achieved a lot of Financial Success fairly early and realized that they were still not seen as these sophisticated, culture people. They were just seen as wall street guys. Many of them became interested in the art world. It was this way to enter a whole other universe of high culture. You have your photo op year and the society pages, and get your name on the wall in a museum. Many of his contemporaries became really interested in art, and they end up in this arms race, bidding up certain artists into these stratospheric prices. A lot of people believe there is a big bubble in the art market. Brian how much is he worth today . Sheelah i believe its at least 10 billion. By the time all of this legal drama ended, he was forced to shut down his hedge fund, but he was still allowed to manage his own money through his private family office. Hes got a pool of his own money, upwards of 10 billion, and he still trades it everyday in the market, so his lifestyle is largely unchanged from what it was before. Brian how many people when he said sac capital went to prison or were convicted . How many around him . Sheelah at least eight were either convicted or pled guilty. However, these were either former or current sac employees. A handful of others were connected to Insider Trading more indirectly. However, the two central characters at the heart of the story, they are very central in my book, are these two former Portfolio Managers for his funds, Matthew Martoma and Michael Steinberg. Martoma is serving a lengthy prison sentence. Although his cases on appeal. And, mr. Steinberg was convicted, but was overturned after an appeal made it harder to convict someone for Insider Trading. He is now doing other things with his life. Brian has Stephen Cohen ever been convicted or charged of anything . Sheelah no, absolutely not. Well, i should clarify. The fcc did charge him with failing to supervise his employees. It was a fairly light charge that was settled for a financial penalty and some modification to his business. He was never charged with any crime himself. There is sort of a dramatic moment in the story where the government, the department of justice, fbi, and the sec lawyers had spent years trying to build up a case against stephen tell. They had been trying to flip people and get to operators. They had wiretaps on people. They had been tracking him for years. By mid2013 there is this sort of dramatic moment where they have to decide, ok what are we going to do. The entire world was watching. A very high profile case. The financial industry was sort of riveted, wouldnt to know whether this huge star of their world was probably going to go to jail. I describe this scene in my book where mr. Cohens lawyers came in to meet with the prosecutor said make a presentation and tried to persuade them not to charge their client. This is something that apparently happens. Defendants are given the opportunity to come in and sort of present their defense. So a handful of very highpriced defense lawyers came in there he and there were around 17 government attorneys present. Lawys, psecutors, others who had been involved in different aspects of the case. Mr. Cohens lawyers made a fourhour presentation. They may get the agreement that he read a critical email they believed contained evidence of Insider Trading. He knew the government was nervous about losing a big case, so they really targeted that weakness. They said you have no one to put on the stand to say they saw him do it or talk about it with him. There is no evidence he read this email. Even if he did, it might not be illegal. They hammered that point home over and over again. They still felt fairly sure of what they felt, which is that there might be something. They had to go and have a hard conversation about the evidence they had and what they can do with it. They ended up deciding they did not have enough evidence to bring to a jury and be sure that they could win. They ended up indicting cohens company instead of cohen himself. Brian and that company paid how much . Sheelah in total, 1. 8 billion. One chunk was an fcc fine, and the other was a criminal settlement. Brian once in a while i see that you were a trader. Where did that start . And we need to define things, like what is Insider Trading . Sheelah one of the reasons i became interested in this story and it connected with me is because i started my career working at two very small hedge funds. I was an analyst, a little different from a trader. The analyst is sort of the egghead who does the research. Traders sit there and decide sell. O buy and my job was to try and analyze our investments and help guide a Portfolio Manager in making these decisions, and then a trader would execute them. Its important to understand this word edge to understand the concept of Insider Information. Inside Steven Cohens former hedge fund, sac, was this Portfolio Manager who had this system that he tried to teach to the guys working for him so they could stay out of trouble. It is a constant concern that you are going to end up with some information you shouldnt have. Hedge funds are very driven by information. The better the information you have, the more likely you are to make money. If you have bad information, you are going to lose money. Everyone is out the new market trying to get the best, sharpest, most useful information. Brian let me ask you about a hedge fund. Can i invest in a hedge fund . Sheelah that depends on what your investable assets are. In general, hedge funds are intended to cater to wealthy investors who can afford to lose the money they put in. Brian was the difference between buying a stock from a company or through a broker and investing in a hedge fund . Sheelah hedge funds were conceived as this boutique, rarefied product catering toward wealthy investors. The idea was a hedge fund was going to take a lot more risk in the markets, potentially, then a regular mutual fund at fidelity or state street. Regulators looked at this and said, if you are going to be taking all this risk and borrowing money and trading it, or if you are going to be shorting stocks, which is betting that a stock will go down rather than up, a very risky activity, not everyone does, the sec said you can only do that if you are taking money from people who can afford to lose the money. We dont want you taking money from middleclass dentists or teachers or whoever. Who will be devastated if they lose this money. Brian why is the government protecting . Sheelah thats the purpose of the regulators, to make sure the market is fair and regulated and that no one is getting fleeced by these hedge funds. Brian how many are there . Sheelah thousands. Brian do they all make money . Sheelah i would argue most of them do not, but a handful make a tremendous amount of money, and they have made the founders of the hedge funds extremely wealthy. Partly this is because they charge very hefty fees, much higher than you would pay at any of your mutual fund companies. Like vanguard. I mean, they charge typically 2 to 3 of the assets they are managing. Brian if i gave them 1 million, they would take 2 off the top. Sheelah just to cover their overhead. At the end of the year, they figure out what profits they made. Brian lets say they make 100 profit. In other words, the whole hedge fund starts out being worth 10 billion, at the end of the year is worth 20 billion. Sheelah they look at 100 profit, and depending on the fund, they will take 20 , sometimes even 50 of that profit and keep it for themselves. That is known as an incentive fee. That is motivation for the Hedge Fund Manager to not do anything really foolish and to work really hard. Brian how much did mr. Cohen make . Sheelah even with high fees, his returns were spectacular. Especially during the early period. He was often returning 30 , 40 , 70 , and investors were fighting to get into his fund all the time because he was just churning out profits. Brian when did you work in his hedge fund . Sheelah i was working in a hedge fund from around 1998 to 2002. Brian how big was the office . Sheelah tiny. Fewer than 10 employees, both of them. This is how steve cohens hedge fund began, by one or two people who did not want to go work at Goldman Sachs. They did want to have to deal with the big corporate culture. They didnt want to wear suits. They were smart and just wanted to make money. They were scrappy and ambitious. A lot of these hedge funds were shops opened by two or three people. Often, especially if they were doing well, they would grow very quickly. Brian lets say you were at this small hedge fund, and i have a lot of money, and i call you up and go, who do i talk to . Sheelah it depends. If you are a brandnew, small hedge fund, you may speak to the fund manager. If you are a slick, sophisticated, multibillion dollar hedge fund, you would be to someone there to cater to investors. Brian lets say i would like to invest. Do i just write a check . Sheelah its a little more complicated that. You have to kind of prove you have enough net worth to qualify to be an investor. It is also possible, if it is in demand, it might not take money from anybody. This often happens with the really hot, highperforming ones. They can kind of pick which investors they want. Brian what kind of people work sheelah o you mean the staff positions . Brian you walk in, d where do these folks come from . Male, female . Minorities in the business . Sheelah sure. I will say hedge funds became very quickly one of the most efficient vehicles to become extremely wealthy. They became known as places to go if you want to get really, really rich. You can make more money and a hedge fund than at a big Bank Goldman Sachs or jpmorgan. Eventually, over time, hedge funds started attracting the best students out of ivy league colleges. Math graduates from m. I. T. , young, ambitious, hungry kid with phds in science and computer programming. Often these people are flocking to hedge funds. Brian where did you come from to a hedge fund . Sheelah i came from a very different background. Brian where did you grow up . Sheelah toronto. Brian parents were from . Sheelah my father is from india. My mother is from the midwest. Brian is that name indian, kolhatkar . Sheelah yes, it is south asian. Brian there are a lot of Indian Americans you are writing about. Did that cross your mind . Sheelah it was obvious. It was remarkable. There are a lot of south asians in all corners of the government, the hedge fund world. I would occasionally ask people if anyone thought about that, and the one explanation i got was that many of these insidertrading rings that the government was pursuing spring up out of personal relationships and personal networks. Often, people end up involved in that kind of behavior with their friends and ople they nt college with, so you would end up with these circles of people where you would have certain groups overrepresented. It was interesting to me. Brian you went to school where . Sheelah i graduated from nyu. Brian in what . Sheelah i have a degree in film. Brian and what did you do after you worked for the hedge fund . Sheelah i spent about five years working for these two hedge funds. It wasnt at all what i intended to do, as you can discern from the fact that i have a film degree. I fell into it by accident. The whole time i was there, i learned a tremendous amount and loved it. I felt a bit like an anthropologist in this world that was really foreign to me. Every year i would say to myself, ok, im going to do this for one more year and then get out and go become a writer or journalist. Every year, i would get a bonus and think, well, maybe i should stay a little longer. I think that is what draws a lot of people into that world, the money draws people in. Brian did you make a lot of money while youre there . Sheelah not relative to what would be a lot now. But for me at the time, it was a lot. Brian and now . Sheelah im a staff writer at the new yorker. Brian this is a very detailed book. About a lot of names and all we wont be getting into. But i want to jump into something from 2011, thanks to pbs frontline. It is available on the website if you want to watch. Here is Stephen Cohen in a deposition which i want you to explain. [begin video clip] do you have an understanding about if you are ever allowed to trade . Thats not the way its explained to me. The way i understand it law, is it is very vague. It is an interpretation of the law. You understand the fcc rules on trading and Insider Information is that they do not preclude unequivocally trading while in possession of such information . Im not aware of that. Youre not aware . No. [end video clip] brian what do you see there . What is that from . Sheelah it is the video of a deposition he gave in a case that was a private, commercial litigation involving a Company Called fairfax, a canadian insurance company, that accused a bunch of hedge funds of manipulating its stock. Brian did you watch all of that deposition . Sheelah i watched some of it. Im not certain i watched all of it. Brian its available on the pbs frontline website, if people want to watch it. Sheelah it is interesting. I remember when those were leaked, it was quite dramatic. Brian we are going to jump around. If people want to know more, it is in the book. I want to go to 2008, chicago, illinois. Dr. Sid gilman. Set it up, please. Who is dr. Sid gilman . Sheelah dr. Ilman was a very accomplished alzimers researcher at the university of michigan. He was head of the medical department there. He authored medical papers, mentored students, helped with drug trials. He was a lion of the scientific community. Very highly regarded. He was in his 70s at the time many of the events in the book place. At one point, one of steves Portfolio Managers, Matthew Martoma, decided he wanted to research a drug trial. He wanted to invest in the development of this drug. There were two Drug Companies trying to invent a cure for alzheimers. Brian elon and wyeth. Both have been purchased since. Pfizer took over wyatt. Wyeth. Sheelah developing a drug is extremely expensive. Going through the drug approval process is expensive. Often, companies will team up to do this. Thats what these two did. Matthew martoma, when he arrived, he was very ambitious. He was looking for a winning trading idea. He was an expert in Technology Stocks and bioTechnology Stocks and Drug Companies. He had been tracking the development of this alzheimers drug. There was tremendous commercial potential for this drug, basically for any company that found a cure for alzheimers. There were billions of dollars to be made. So he started looking around for people who could help him learn more about thidrug trial. He ended up becoming connected to dr. Gilman. Over a number of months, cultivated a relationship with dr. Gilman that culminated in him getting allegedly inside information from dr. Gilman about the drug trial. There is a very dramatic moment that i recount in the book where dr. Gilman appears at a medical conference in chicago, i think in july 2008. It is this big unveiling of the final trial results of this alzheimers drug trial. This auditorium at the hotel in Downtown Chicago is packed. There are research