LILA RAJIVA: The Mind-Body Politic
Individuals Not Ideologies
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Steve Cohen To Leave Trading, Says Vanity Fair
Well, well, well. It looks like Patrick Byrne, Judd Bagley, Mark Mitchell and the rest of the estimable team at Deep Capture are having more than some effect.
Not only have the Germans and Austrians banned naked short- selling, Vanity Fair, our least favorite low-class, high-gloss magazine of the DC twitterati, tells us that Steve Cohen is closing up shop as a trader. Sith Lord Cohen doesn’t like the spotlight, it seems. Maybe he remembers all too well what he was up to in the 1980s……even if Reuters wants to keep it buried.
In the July issue of Vanity Fair, legendary hedge-fund billionaire Steve Cohen tells special correspondent Bryan Burrough that he might be ready to walk away from active trading. How big would that be? Well, says Burrough, it’s “a little like saying that God is ready to walk away from Earth.” In this video, Burrough takes the measure of Cohen’s controversial careeer—and offers his theory on why the reclusive banker granted the second in-depth interview of his 30-year career to Vanity Fair.
Secretive Steve Cohen On Talk Show Discussing Relationship With Ex—
I’d been avoiding mentioning the by-now famous clip of Steve Cohen on a talk show back in 1992, because it seems like a low blow. I mean, hit the guy over the head on insider trading, but don’t worm around in the trash can for dirt on him. Of course, he did put himself on the show…
But, either way, there’s one angle that is relevant.
If you’re billed as the most secretive guy in the hedge world, presumably because you’re a reclusive, crowd-shy financial genius, what does it say that you once got onto a TV show called Cristina of none-too-distinguished caliber to discuss intimate details of your personal life?
Hmm. That’d hardly what I call shrinking violet material.
Here, sans video (because we don’t drag people’s families in the mud on this blog) is the lowdown at New York Magazine:
“Shortly after they were married in 1992, Steve Cohen, the notoriously secretive hedge-fund manager at SAC Capital, and his second wife, Alex, went on the short-lived English-language version of the popular talk show Christina. The episode? “He Acts Like Her Husband!” The subject discussed? Steve’s too-close relationship with his ex-wife, Patricia Cohen, who recently filed a $300 million lawsuit against him.”
Think about that for a moment.
Psychologically, that doesn’t make any sense for a reclusive genius…
But, just suppose, what you have here is not a shy geeky genius (or maybe, I should qualify that - not solely a shy geeky genius) but a guy who was quite at home at a shady broker called Gruntal & Co. in the 1980s - a broker that had ties to the Russian mob and to a whole set of players to whom ‘reclusive’ and ’shy’ are the last words you’d apply. Just suppose what you have here is a guy who was a player in that crowd….making his way any way he could. And just suppose, that past is why he keeps a low profile…
Just suppose.
It’s at least a distinct possibility.
But what’s more like a high probability is that anyone who puts out an article on Steve Cohen like this one or this one by John Carney has lost quite a bit of his credibility on Steven Cohen and on a few things closely related like, say, insider trading…or naked shorting….
Carney’s explanation why Steven Cohen can have done no wrong? A SAC trader told him so. That’s why.
“The trader described the enormous, football field sized trading floor at SAC as “the cleanest in the biz.”
A SAC trader says SAC is 100 percent clean. Because?
Well, that part of it isn’t mentioned in the article, although a lot of other stuff which sure as heck sounds super close to insider trading is.
“When I was there, we put tons of pressure on our brokers to make sure they gave us any information they had fast and first,“
And what was that John Carney was calling Matt Taibbi only a couple of months ago?
Naive?
Reverse Midas: SAC Spin-Offs Fail Even When They Succeed
Reading this report about SAC Capital by Reuters, I was struck by a few things.
But first, here’s the chronology (skip below for my argument):
- 1980s: Steven Cohen allegedly involved in insider trading at Gruntal
- 1999-2004, 2004-2007, 2007-2009: Insider trading at Spherix (ex-SAC trader Richard Lee’s own firm); and possibly at Stratix (founded by Goodman and Grodin in 2004, also ex-SAC traders, with SAC as a sizable investor); and (again, possibly) at SAC itself, by Richard Lee and Ali Far, also an alum of SAC.
- 2006: SEC investigates SAC and two other firms for manipulation of Fairfax Financial stock. Investigation dropped in 2007
- 2007-2009: Agent Kang investigates 20 hedge funds for insider trading
- 2007: SEC investigates SAC over Andrew Tong’s sex charges. Case sealed in 2008. Reopened in Nov. 2009, this time focusing on insider trading. About this time, Richard Grodin’s and Ian Goodman’s firm Stratix (where Lee and Far worked) closes. Grodin then begins Quadrum, which also closes
- Oct-Nov 2009: Galleon Group charged by Kang with insider trading and 14 traders arrested, including former SAC traders, Richard Lee and Ali Far
- Nov-Dec 2009: Cohen’s ex-wife alleges insider trading when Cohen was at Gruntal & Co. in the 1980s
- Dec. 2009: Ex-SAC trader and founder of Stratix Richard Grodin subpoenaed
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Now that you have that in mind, here are the things that struck me:
1. The high number of SAC traders who seem to have gone off into their own businesses.
You’d think with all that money and the fund’s record as the most consistently successful in the business (only one bad year on record), their traders would stay forever. Quite the opposite. People seem to have been leaving all the time to form their own businesses.
But SAC was also said to be a very tough environment. You produced, or you left.
So maybe that’s why Lee and Far, Grodin and Goodman, all left to found their own firms?
Could be. But I’m not convinced.2. None of the spin-off firms seems to have been very successful.
Why not? Why couldn’t these hot-shot traders make money on their own?
The Reuters piece suggests that perhaps the SAC experience didn’t foster business ability. And that perhaps SAC traders flounder without SAC’s huge supporting cast.
But those things are likely to be true of other firms as well, not solely SAC.
Still not convinced.
Furthermore, consider this.
3. A spin-off fund that didn’t get money from Cohen ended up quite successful:
“Healthcor, a healthcare industry focused fund, had raised $3.2 billion by June 2009 since launching four years ago. The fund returned 25 percent in 2006, 18 percent in 2007, and was up 4 percent last year, when the average hedge fund lost 19 percent. In the first 10 months of 2009, Healthcor was up 7 percent.
Healthcor, founded by Arthur Cohen and Joseph Healey, opened without any financial support from SAC. In fact, soon after Cohen and Healey struck out on their own, SAC sued the pair, accusing them of breaching their employment contracts. The matter ultimately was settled. (Healthcor’s Cohen is not related to SAC’s Cohen).”
4. Even spin-offs that were doing well were shut down.
When Stratix started in 2004, it had $60 million given to it by SAC. When it shut down, in 2007, it was up 17% and had $530 million under management. Yet it shut down. Why did it shut down? Those numbers sound pretty good.
Another spin-off, Fontana Capital, started out in 2005 with $50 million of SAC money. It grew to $325 million by 2006. But sometime in 2007, Cohen pulled out all his money. And in 2009, Fontana was down to $16.1 million, despite being down only 7.69%, compared to the average S&P Financial index loss of 57%. Again, that sounds like it wasn’t doing all that bad.
Reuters quotes someone familiar with the record of ex-SAC traders:
“So many of the ex-SAC people seem to have this model where they attract you with fantastic returns in the first year but in year two or three or four you get annihilated,” said a person who is familiar with several former SAC employees’ records.
Shades of Bernie Madoff….
Someone need to look closely at what happened to the money at these firms…
SEC Subpoenas Former SAC Trader Grodin
El Economista carries this Reuters report, dating from yesterday, Dec. 24, on the SEC´s subpoena of a former manager at Steven Cohen´s SAC Capital hedge-fund:
“Federal prosecutors in the Galleon Group case have sent a subpoena to a former employee of Steven A. Cohen’s SAC Capital Advisors, a sign that the scope of the problem into the largest hedge-fund insider trading case in history is expanding, the Wall Street Journal reported, citing people familiar with the matter.
The subpoena seeks trading records from a former SAC hedge fund manager, Richard Grodin, who employed a cooperating witness in the insider trading case announced last week, the Journal said.”
My Comment
It’s all getting pretty tangled, so first let me try to bring some order into the picture.
- I blogged, via Terri Buhl, that hedge-funds are going SAC-remote, deleting their email records and changing their trading positions so they don´t look too similar to Cohen´s, in anticipation of a probe. And now here come the subpoenas.
- The subpoena to Grodin arises out of the two-year FBI investigation of twenty hedge-funds that became public in October 2009 with the Galleon arrests.
- The investigation is headed by FBI agent B. J. Kang.
- Kang also led the probe into the alleged stock manipulation of Fairfax Financial in 2006, in which SAC was one of three hedge-funds involved.
- So far, Kang’s probe has led to a series of arrests of traders involved with Galleon Group in October and November, among them two former SAC traders. (A third, Mark Adams, is also suspected of insider trading).
- The two traders, Richard Choo-Beng Lee, and Ali Far, have admitted that they were involved in insider trading not only at their own fund Spherix, but going back to 1994. This makes it highly probable that they were also trading illegally at SAC, where Lee worked for about five years.
- Specifically, the agreement Far and Lee signed with the US Attorney’s Office charges conspiracies to commit insider trading from 2007-2009, from 2004-2007, and from 1999-2004.
- Galleon chief Raj Rajaratnam’s brother Rengan, who was investigated for insider trading at his firm Sedna, also worked for SAC in 2003.
- Lee is also going to be testifying about any insider trading he might have done at another firm, Stratix, which was founded by former SAC trader Richard Grodin, and yet another SAC alumnus, Ian Goodman.
- Stratix, whose investors include SAC (is your head whirling?), shut down in 2007.
- Then Grodin began another firm, Quadrum, which also shut down (”abruptly”, says Reuters).
- Also, in November, we had the bizarre revelations of Andrew Tong, who claims he was sodomized and forced into oral sex, cross-dressing, and the ingestion of female hormones (to make him the perfect androgynous trader) by his boss, SAC trader Ping Jiang. Investigated in 2007, the case was dismissed as lacking in substance. The records were sealed, leaving many people feeling that the SEC, as a Harvard paper recently confirmed, tends to go after smaller rather than bigger fish.
- But in November ‘09, the Tong case was opened again and given wide attention on the internet, this time with more attention to Tong’s claims that Ping Jiang forced him to into illegal trading that led to a $3 million loss. The loss was the reason SAC gave for Tong’s firing. But Tong himself claims that that was just an excuse and that the sexual harassment was the real reason. He also claims that Cohen knew what was going on and didn’t care, as long as money was being made. In keeping with the firm’s reputation for secrecy, Cohen made everyone sign confidentiality agreements and kept even top officers in the company out of the loop.
- These revelations have been followed by new charges made by Cohen´s ex-wife Patricia that her husband had cheated her out of money in their divorce settlement. Some of that money, she now claims, was hidden from the government and came from illegal insider-trading by Cohen was he was a young trader in the 1980s at Gruntal & Co., a shady brokerage with a history of embezzlement and scandal.
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NOTE:
**If you want to understand the modus operandi of one of these insider trading deals, read Deep Capture´s latest analysis. It displays some of the emails sent by certain hedge-funds that colluded with SAC in the manipulation of the stocks of Fairfax Financial, Jim Chanos´Kynikos and Third Point among them.
The Fairfax investigation (opened in 2006) petered out, but Deep Capture’s email collection nixes any chance that the record can be wiped clean by any of the funds involved (you can also see Bagley´s piece posted at Seeking Alpha).
Den Of Thieves: Hedge-Hogs Go Into SAC-Remote Mode
Update: Deep Capture indicates that they have some emails proving insider trading, so any attempts to delete files/emails by SAC and other firms might not be any good, since the files just happen to implicate said firms in…insider trading.
Ah, the web we weave…etc. etc.
Terry Buhl at Hedge Fund-Implode.com reports that residents of hedgefund land are going into SAC-remote mode:
“Funds like Blue Ridge, Greenlight, Third Point, Glenview, and Maverick are cutting back on any contact with King Stevie. When we asked major players such as Jim Chanos and others if they’ve been pinging Stevie about a trade lately, you’ll get a very defensive `no.’ Why? Because word on the street is they all think FBI special agent BJ Kang, who is now dogging Stevie, has the goods to deliver the hammer soon in the form of an indictment or arrest for insider trading.
Extra measures are being taken to hire data-miners to comb through any and all emails firms and their trading consultants ever sent to anyone at SAC in an attempt to erase them from internet memory. According to traders we talked with, they are even going as far as getting out of trades that might look similar to any of Stevie’s. So it looks like running due diligence on your `SAC risk’ to prove to your investors that you’re clean – like Larry Robbins of Glenview capital just did – is the new `killing it’.”
My Comment:
Just to recap.
*Steven Cohen is the multibillionaire chief of legendary hedge-fund SAC, which sits at the top of the heap among funds. Cohen, famously reclusive, is said to have had only one bad year of trading.
Now he´s having a bad time from the FBI investigation of the insider-trading case against New York-based hedge-fund Galleon Group, which is proving to have teeth in it.
SAC has a history of elbows-and-knees-style trading practices, according to this 2003 Business Week article.
*The head of Galleon (which once managed $7 billion in assets), Sri Lanka-born Raj Rajaratnam was arrested, along with five others, on October 16 in a $17 million dollar insider-trading case brought by federal prosecutors and the FBI.
(The numbers vary: it´s $20.8 million, according to a later WSJ report, and $25 million in a NY Daily report)
*The case was unusual in that FBI agent B. J. Kang used wire-tapping for the investigation (normally used only in drug-related cases).
*The Galleon arrests were quickly followed by other arrests of traders, lawyers and hedge-fund managers on November 5, including one Zvi Goffer, who, as the brains of the insider network, was referred to as “the octopussy.” This brought the total number of arrests in the case to 14 (Correction on 12/29: I read 20 elsewhere) and added another $20 million to the fraud, already the biggest in Wall Street history since the days of Ivan Boeksy in the 1980s.
*On December 16, Steven Cohen´s ex-wife Patricia accused him of hiding millions from her and of insider trading in a 1986 merger when Cohen was a young trader at now-defunct broker, Gruntal.
*Indicted on December 17 (December 15, according to one source) by a Federal grand jury on multiple criminal counts of insider trading and securities fraud, Rajaratnam pleaded not guilty. Many of the charges against him carry upto 20 year prison sentences. The trial is expected to take place in the summer of 2010.
*The broker Gruntal has an interesting history, in that it seems to be the place where several of the biggest names on Wall Street (aka some of the most crooked players) crossed paths:
Bernie Madoff, Ezra Merkel (Madoff fund associate), Ivan Boesky (infamous 1980s trader), Michael Milken (junk bond innovator), Carl Icahn (famed and feared corporate raider), Steven Feinberg, ,…and yes, Steven Cohen:
From Deep Capture:
“Another of Madoff’s most important “feeders” was J. Ezra Merkin, who managed the Ariel Fund, which seems to have been designed specifically to raise money for Madoff’s fraudulent investment business. In this regard, the New York attorney general has described “Merkin’s deceit, recklessness, and breaches of fiduciary duty…”
While Merkin was “deceitfully” feeding the Madoff Ponzi, he was also a co-owner, along with Steve Feinberg, of Cerberus Capital Management, a fund named after the mythological three-headed dog that guards the gates of Hell.
Previously, Feinberg was a top trader for Michael Milken at Drexel Burnham Lambert. After Drexel, Mr. Feinberg moved (on Milken’s recommendation) to a brokerage called Gruntal & Company.”
Gruntal owed its existence to the generous junk bond finance that its parent company, the Home Group, received from Michael Milken. Its options department was founded by Carl Icahn, who later became a “prominent” billionaire owing to the junk bond finance that he received from Michael Milken.
When Icahn left Gruntal, he was replaced by a Milken crony named Ron Aizer, who proceeded, on the recommendation of Milken, to hire two traders.
The first trader hired by Aizer was, according to a reliable source, investigated by the SEC for trading on inside information that he received from Milken’s operation at Drexel Burnham Lambert. This trader is now a “prominent” billionaire and the manager of a well-known hedge fund. The second trader hired by Aizer is now also a “prominent” hedge fund manager, though he is not quite a billionaire. Both of these traders play important roles in the story of Dendreon. Carl Icahn, the founder of Gruntal’s options department, has a cameo role, too.”
There is more, of course, much more to the story, and many more names, including Michael Steinhardt, Marc Rich who was pardoned by Clinton for tax evasion and dealing with Iran against US law, and many others, but that would make this post far too long, so I will send you instead to this page.…and this...for now.
(Of course, we could ask why hedge-funds with an edge get to be prosecuted, while governments with the biggest edge of all don´t - but there, we won´t spoil the fun).
Sad SAC: Reuters Spikes Hedge Story On Complaints From Steve Cohen
Via Finalternatives:
“Reuters opted against running a story about alleged insider-trading on the part of SAC Capital Advisors founder Steven Cohen after Cohen himself complained about the news agency’s coverage, a journalism blog reports.
Cohen repeatedly called Devin Wenig, CEO of Thompson Reuters Markets Division and the second-in-command at Reuters parent Thomson Reuters, according to Talking Biz News. The hedge fund boss reportedly complained that the story, which the University of North Carolina blog reports would have been an “incremental” advance in the story of alleged insider-trading more than 20 years ago, was part of a pattern of persecution on the part of Reuters.
Wenig forwarded Cohen’s complaints to Reuters editor-in-chief David Schlesinger, who in turn referred the story to editors. Those editors debated the story, written by Matthew Goldstein, before deciding to kill it after three days.
“We make decisions on whether or not to run stories purely on journalistic grounds,” a Reuters spokesman told Talking Biz News.
Goldstein was the first reporter to cite the unsealed court documents that include explosive allegations against SAC and former SAC portfolio manager Ping Jiang. Cohen’s ex-wife, Patricia, last week sued him for $300 million, accusing him of insider-trading, perjury and hiding assets from her and from the authorities.”
My Comment
Looks like more confirmation of the Deep Capture thesis - that major newspapers are bending over backwards…and forwards….for the big hedge funds.
I notice that Hedge World has picked this story up….as well it should, it’s a big one… and very kindly links this blog, as well as the ever-alert zerohedge - the only MSM-touted blog I truly dig, mainly because I dig the characters on it.
Earlier, I blogged that Steven Cohen was also having problems with a militant ex-missus, who has gone public with allegations that he perjured himself, hid money from the government (here we are on Stevie’s side), and did other sorts of naughty things, like insider trading, that reclusive billionaires really shouldn’t do, not if they want to stay either reclusive or billionaires.
We have much more sympathy for Mr. Cohen, of course, than we do for the self-important twits and petty tyrants who fly their bylines at major newspapers with little respect for the body politic. At least, we understand simple greed. But the weedy vanity of the pen-pushing mob needs to be exposed for what it is.
Now comes Mr. Goldstein, who clearly suffers from the delusion that his job is to break important stories, no matter how exalted the net worth of the subjects. That didn’t sit well with his boss, and now the dirty laundry is out in the open.
Meanwhile, as if irate Sith ladies and spiked stories weren’t enough, there’s also a forced oral sex- cross-dressing- cum- sexual-harassment suit coming back from the past to haunt Sad SAC.
Who knew you could have so much fun without getting naked (shorted)?
Ex-Sith Lady Uses RICO On Sith Lord (?)
The ex-wife of Steven A. Cohen, legendary multi-billionaire manager of hedge-fund SAC, whom the ever controversial (and confrontational) Patrick Byrne has for some time been suggesting is the, or perhaps, one of the Sith Lord/s of Wall Street, is using RICO laws to get a bigger settlement from her former husband. That´s turned up some interesting accusations:
“In Ms. Cohen’s version of events, her husband and his brother, Donald Cohen, orchestrated a long-running racketeering scheme. She says her former husband lied under oath about his net worth, conducted mail and wire fraud, and concealed from her and the Supreme Court of New York millions of dollars that he possessed in 1990, thus reducing her divorce settlement.
Even in this post-Madoff era, the accusations might seem outlandish. Mr. Cohen, known as Stevie, is one of the nation’s most successful money managers. With a $13 billion hedge fund and a sumptuous Connecticut estate, he is, at 53, a Wall Street legend.
But all of this comes at an uncomfortable moment for Mr. Cohen and his company, SAC Capital Advisors. Since federal prospectors began making arrests in a major insider trading investigation in October, SAC, which is based in Stamford, Conn., has been linked to the case.
A former SAC analyst has pleaded guilty on charges related to insider trading that occurred years after he left the firm and has agreed to provide any information he might have about insider trading that occurred when he was at SAC. No current SAC employee or manager has been charged with wrongdoing.”
and this:
“She claims in her suit that in 1985, while they were married, Mr. Cohen confessed to her that he received inside information about the takeover of RCA by General Electric, a megadeal of the 1980s that prompted a sweeping insider-trading investigation. The Securities and Exchange Commission dropped its investigation after bringing charges against a G.E. executive and a Houston family with ties to a Wall Street bank.”
and this:
“When the couple divorced, Mr. Cohen stated that, on paper, he had a net worth of $16.9 million. But $8.7 million of that was “worthless,” he said, because of a bad real estate deal with Mr. Lurie.”
Lurie, who later fell out with Cohen, claimed that the money he got from Cohen to put through the deal came from an SAC trading account.…
My Comment
And some substantiation for the charges can be found in this WSJ story on Goldman Sachs analysts tipping off their own traders first and then favored hedge-funds (SAC at the head of them), before their own clients(which I noted in 2006).
See also this Deep Capture post.Apparently, it´s not easy street being a Sith Lord. You never know when your spurned Sith Lady (not to mention various disgruntled Sith Knaves) might spring out from the shadows to expose what´s apparently standard operating procedure in the money business.
(Sigh) Not even a Greenwich mansion seems worth it (for a colorful account of the culture of the hedgies, whom we call the bubble kings, see “The High Way Robbers,” in ¨Mobs, Messiahs and Markets,”(Bonner & Rajiva, Wiley 2007).
I said this a long time ago in “Three Card Capitalists”
The market collapse might have been triggered proximately by failed sub-prime loans, but the deeper sources of it lie in the massive fraud and corruption that go back to the 1980s, and even earlier, to the 1970s.
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