Circle of Friends Read Free

potentially their old boss. Still others, such as SAC star trader and close Cohen associate Michael Steinberg, have chosen to fight. As I write this in April 2013, Steinberg has been indicted on conspiracy to commit securities fraud and four counts of insider trading and faces many of the same decisions faced by people like David Slaine. Unlike Slaine, so far Steinberg has chosen to fight, pleading not guilty, but that could change as it has with others.
    Steinberg’s arrest came in classic Perfect Hedge fashion—in the early morning hours, and with FBI agents equipped with bulletproof vests and guns at their side providing their targets with a grim introduction to what it’s like going up against the federal government’s vast white-collar crime fighting apparatus. It is meant as a warning to both Steinberg and anyone else targeted in the inquiry that fighting the government comes at a price, legal experts say.
    One thing seems clear: Since 2007, civil and criminal authorities have spared almost no expense trying to snare the man who on paper at least is considered among the world’s greatest investors. Steve Cohen and his advisers say SAC’s investment record—nearly 30 percent annual returns since the fund began in 1992—is the result of research and skill, flowing from the man at the top of the firm through the best traders, investors, and analysts in the business. Federal investigators, however, appear convinced that same success is the result of having—at least at times—an illegal edge over public investors through the use of inside information gleaned from various confidential sources.
    So convinced are they, in fact, that at one point, the FBI even received court approval to wiretap Cohen’s home telephone—one of the first times in law enforcement history that wiretaps would be used in a white-collar case. While the wiretaps were unhelpful in making a case against Cohen, the scrutiny continues. SAC recently paid more than $600 million to settle a civil inquiry by the Securities and Exchange Commission without admitting or denying wrongdoing. The inquiry involved a former portfolio manager who allegedly traded on inside information regarding a pair of drug stocks. Just before Christmas of 2012, that former portfolio manager, Mathew Martoma, was himself indicted for allegedly trading on inside information. A key aspect of the indictment was a section where Martoma holds a 20-minute telephone call with Cohen—and then SAC abruptly sells hundreds of millions of dollars of the drug stocks in question.
    What exactly was said during that telephone conversation is unclear; what isn’t is the fact that the Justice Department has told Martoma that it is willing to trade leniency for his cooperation against Cohen.
    Martoma—as he awaits trial—has taken the Steinberg route, both by declaring his innocence of the charges and at least for now refusing to characterize that what he told his old boss was anything but aboveboard. That might change as well since Martoma is facing a similarly long jail term if he doesn’t cooperate. With that, SAC remains on edge; the fund has produced some of the biggest returns in the investing world for more than two decades, but investor cash is starting to drain out amid the scrutiny. Cohen, for his part, has declined repeated attempts to be interviewed for this book. Through a spokesman, he has maintained his innocence, saying he has acted properly at all times. But prosecutors aren’t impressed. The indictment of Martoma went to great lengths to point to Cohen as the possible recipient of one of the profitable insider tips that are central to the case. The indictment stopped short of saying Cohen knew the tip was dirty, or mentioning Cohen specifically by name (it referred to him as the hedge fund “owner” and “portfolio-manager A”).
    But the message was delivered loud and clear.
    W hite-collar law