The US Justice Department recently announced it had come to an agreement with hedge fund SAC Capital.
The fund had been charged with insider trading, and in order to settle those charges, it admitted guilt, agreed to pay a $US1.8 billion fine, and return all money belonging to outside investors.
In short, the storied hedge fund would shut down, leaving CEO Steve Cohen — known for being one of the most successful traders on Wall Street — with a $US9 billion family office… and an ongoing SEC investigation into his own trading.
Cohen began his Stamford-headquartered hedge fund in 1992 with only $US25 million, and came into prominence for his grand slam returns. In its better days, SAC had $US14 billion assets under management and employees around 900 people globally.
Then things turned very sour, as accusations of insider trading started to plague the firm and its subsidiary hedge funds.
Most notably, last year Cohen was fingered in several media reports as “Portfolio Manager A” in the insider trading case against former CR Intrinsic (a subsidiary of SAC) portfolio manager Mathew Martoma.
Since then, Federal authorities haven’t given an inch, and in a press conference about SAC’s settlement today, U.S. Attorney Preet Bahrara hinted that prosecutors and regulators were far from done with Cohen and his firm.
“No institutions should rest easy in the belief that it is too big to jail,” said Bahrara. “Today one of the world’s most powerful hedge funds… agreed to shut down… That is the just… outcome.”
Here’s how it all fell down.
Steven Cohen originally hails from Long Island He grew up in a middle class family and had a lot of siblings.
He studied economics at the Wharton School of Business at the University of Pennsylvania.
He started his career on Wall Street at Gruntal & Co, and essentially became a legend on his first day.
After graduating in 1978, he went to Wall Street to work for at boutique investment banking and brokerage firm Gruntal & Co. as a junior trader in the options arbitrage group.
We've all heard the Wall Street legend that he made $US8,000 his first day and was bringing in around $US100,000 each day.
The super-secretive SAC Capital is one of those closely followed hedge funds on Wall Street. Here are some details about it what the trading floor is like:
Here's how the Wall Street Journal described the trading floor in a 2006 article:
The 20,000-square-foot trading room at SAC Capital Advisors, chilled to 70 degrees to keep traders alert, was hushed. Mr. Cohen, who sits at its center, likes it that way. Phones blink rather than ring. Computer hard drives had been moved off the trading floor to eliminate hum. Rows of traders wearing SAC fleece jackets watched Mr. Cohen nervously, waiting for an order to sell shares.
In the early 1990s, Cohen hired psychiatrist Dr. Ari Kiev, who has worked with Olympians, to coach his traders in coping with stresses from the market.
He died in November 2009 at the age of 75.
Cohen has been married two times. In 1979, he got married to his first wife. The marriage didn't last long.
When he was 23 years old, Cohen married Patricia Finke.
They had two children together and got divorced in 1988.
In 2009, Cohen's ex-wife Patricia alleged that he hid millions from her and some of that money had come from insider trading in RCA shares back in 1985 before it was acquired by General Electric.
The case was ultimately dismissed in 2011.
Cohen met his wife Alexandra (Alexandra Garcia) through a dating service in 1991 after he divorced his first wife.
Alexandra was a single mum of Puerto Rican descent who grew up in Washington Heights.
They have four children together.
Source: Vanity Fair
Back in the 90's, Cohen made an appearance on a Hispanic talks show where he talked about sleeping with his ex when he was dating Alex.
It's widely known that Cohen is press-shy and super-secretive.
However, back in 1992 he made an appearance on an incredibly famous Hispanic talk show, 'Cristina' (she's like a Latin American Oprah) in an episode called 'He Acts Like Her Husband, Too.'
During the episode, Cohen talked about sleeping with his ex-wife when he started dating Alex, his current wife. He stopped when he got engaged.
On the Street, Cohen is often referred to as 'Stevie.' He apparently hates that nickname.
Cohen has been collecting art since 2000.
His impressive art collection, which is said to be worth around $US1 billion, includes pieces by Monet, Picasso, Jasper Johns, Jeff Koons, Damien Hirst, Willem de Kooning, Francis Bacon and Andy Warhol, according to a 2010 Vanity Fair profile.
Cohen also loves himself some poker and has a stake in the New York Mets (a team he watched as a kid).
The Cohen family lives in this jaw-dropping massive Connecticut mansion and just bought a $US60 million Hamptons house.
The Cohens live in a 35,000 square foot home on 14 acres in Greenwich, Connecticut. They purchased the jaw-dropping mansion in 1998 for $US14 million.
The lavish estate features a basketball court, an indoor pool and a 6,734 square-foot ice skating rink.
He also bought a $60 million Hamptons house this spring.
Just as Cohen bought his Hamptons house in March, SAC also paid a $US616 million fine for illegal conduct at an SAC subsidiary.
The charges were related to the insider trading case against former SAC portfolio manger Mathew Martoma, who was charged in what is believed to be 'the most lucrative' insider trading scheme ever the year before.
Several media reports have identified 'Portfolio Manager A' in the complaints against Martoma as Steve Cohen.
Cohen told investors in a client conference call that he's confident he acted appropriately. He has not been charged. He might not ever be charged.
In July the Department of Justice indicted SAC Capital for insider trading amid a load of investor redemption requests.
The firm itself was indicted on criminal charges, not Cohen, and plead not guilty.
What Cohen WAS charged with, was 'failure to supervise' his traders -- an SEC violation that could bar him from the securities industry for life.
At the time, investors had requested to pull around $US3 billion out of the firm, according to estimates.
The today, a settlement was announced. SAC would plead guilty to insider trading charges, pay $US1.8 billion, and return all outside investor money.
This effectively ends SAC's impressive run as a hedge fund, turning the firm into a family office.
It remains to be seen, yet, what will happen to Steve Cohen. The SEC's 'failure to supervise' case is ongoing, and the FBI is still going through Cohen's own trades looking for traces of insider trading.
So Cohen could fall even farther.
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