Episode 1: A Game of Poker | The FBI vs. The Hedge Fund | Full Episode

to listen to american scandal one week early and add free join wondering plus in the wondry app download the wondry app in your apple or google play mobile app store today [Music] it's the evening of november 8 2011 and bj kang is driving down a suburban street outside boca raton florida kang is an fbi agent with a short crew cut and a form-fitting suit as he drives through southeast florida he gazes out at the palm trees swaying in the warm evening breeze tonight kang is over a thousand miles from his office in manhattan but he's not here on vacation kang and his partner at the fbi are looking for the home of a former wall street trader named matthew martoma a man they believe is guilty of financial crimes soon kang reaches a two-story mansion at the end of a cul-de-sac it's built like some spanish castle the kind of place that comes with marble floors and an elevator and while kang's never been inside he already knows what the interior looks like because for five years kang has been investigating martoma he knows almost everything there is to know about the former trader and what it all comes down to is that martoma broke one of the most important rules on wall street he engaged in insider trading a crime that could send him to prison but tonight kang's not here to make an arrest because even though martoma committed a felony the former trader could play a key role in a much larger investigation kang is hoping that he can get martoma to flip to rat out his old boss a man named stephen cohen cohen is the biggest hedge fund trader in the united states and he appears to be gaming the market running an operation that profits off bribes and illegally acquired information and if kang is successful if he can pressure martoma to admit the truth about his old boss the fbi will be one step closer to bringing down cohen's empire kang opens the door to his rental car and steps out into the humid evening air he and his partner approach the mansion's front door and kang straightens the lapels of his jacket after ringing the doorbell kang waits a minute passes with no answer so he rings the doorbell again it doesn't seem like anyone's home but they've come too far to turn back now so kang and his partner stand on the front steps waiting an hour passes and kang starts to feel himself losing patience but then a car pulls into the driveway and a man with short cropped black hair steps out alongside his wife can i can i help you yes mr martoma i'm special agent bj kang we're from the fbi we'd like to speak with you about a former business associate fbi it's not really a good time mr martoma i'm afraid it can't wait we need to speak to you about something sensitive and we should probably go somewhere private what's this all about we're here because you worked for sac capital from 2006 to 2010. that's correct right uh yeah that's right i was a trader and you worked for stephen cohen in the firm's healthcare division yeah that's right too but that was a long time ago i moved on from cohen and sac so what is this about really kang exchanges looks with his partner it's time to show his cards mr martoma we're here to talk about insider trading we know about the wyeth and elan trades we know you sold your shares just in time made a large profit and we know your tips came from someone on the inside what no i'm sorry could you just martoma leans against the doorway suddenly looking fatigued mr martoma are you okay i i'd like to sit down if i'm not i'm not but martoma doesn't finish getting his words out his eyes go glassy and suddenly he faints and collapses mr martomo matthew matthew can you hear me kang tells his partner they might need an ambulance martoma might have just suffered a stroke or a heart attack and if he did it's not just martoma's life that's in danger it could imperil kang's entire investigation but just as his partner is about to dial for the ambulance kang notices martoma's eyelids begin to flutter then they open and kang smiles his potential informant is going to be fine he must have been overwhelmed with the accusation his own body has all but admitted the truth but kang will be careful in further questioning he can't have martoma faint again still if all goes according to plan by the end of this evening kang will have more than enough information to go after stephen cohen his hedge fund sac capital and the illegal financial empire they've built [Music] from wondering i'm lindsey graham and this is american scandal [Music] [Applause] the 1980s and 90s were a boom time for traders on wall street some investors grew staggeringly rich and the american economy expanded at record base but one firm sac capital advisors distinguished itself from the pack year after year this hedge fund produced mesmerizing profits other investors on wall street couldn't figure out the secret behind the success at sac and how stephen cohen the hedge fund's founder became one of the most powerful men in finance but in a world where good intelligence can help produce huge returns rumors began that cohen had a network of insiders who traded him secret information helping him become a billionaire multiple times over cohen's winning streak wouldn't last forever the fbi and other government agencies began a years-long investigation into cohen and insider trading culminating with a series of high-stakes trials in the eyes of the public it was a test to see whether wall street could actually be policed but before he faced off against the authorities and before the world grappled with the huge power of hedge funds stephen cohen was a young man with a talent for numbers and a burning desire to win this is episode 1 a game of poker it's the early 1970s and a humid day in great neck new york stephen cohen is about to head into his senior year of high school but today he's stuck working a summer job stocking shelves at the bohac supermarket he has to be on his feet for hours going aisle to aisle sticking price tags on cans of corn boxes of cereal and stacking them on the shelves it's mind-numbing work but it's not the worst job because it gives cohen time to think about the one thing that truly matters to him winning at poker as he stacks cans in his head cohen begins dealing imaginary hands of cards trying to figure out how to win for cohen there's nothing like poker he loves to compute numbers and probability and the thrill of getting it right is like an addiction but cohen also knows he has a special gift he can spot the other players tells the hidden language of the body size and frowns nervous tapping on the table and while he has a strong intuition cohen also knows that to win a poker you need an informational edge and that's why he keeps playing imaginary hands in his head trying to game out all possible outcomes practice and probability make perfect and that matters because tonight cohen's going to meet with some of the neighborhood guys they often stay up gambling until dawn a lot of money gets exchanged and cohen wants to win as much of it as he possibly can cohen is playing through another imaginary hand in his head when suddenly his train of thought is interrupted the floor manager of the grocery store appears in front of cohen reeking of cigarette smoke he grabs a price gun out of cohen's hand and with a look of frustration he points out that the cans are mislabeled cohen got the price wrong cohen winces it isn't like him to make a careless mistake like that he tries to play it off joking that his brain is a bit mushy after all the repetitive work but the manager doesn't smile instead he warns cohn that he needs to be more careful or he'll find he's out of a job but cohen laughs at the threat it sounds like a bluff the floor manager repeats himself though cohen cannot slip up it may seem like a matter of nickels and dimes but it adds up to real money for the grocery store cohen is about to make another wisecrack but the floor manager turns and stalks off leaving him alone with stacks of mispriced canned food cohen returns to work knowing full well that the manager is right nickels and dimes do add up to real money at least here in a place like great neck even when cohen wins big at poker he only takes home a few extra dollars small amount of spending money it's nothing life-changing nothing like the kind of money cohen knows you can make across the river in manhattan cohen starts slapping new price tags on each can of corn but with his hands aching and his mind turning again to numbers cohen makes a promise to himself he's going to get through this summer and he's going to start and finish his senior year of high school but then he's going to find his way into manhattan and start playing for real money [Music] it's 1976 and stephen cohen crosses a busy street in downtown philadelphia he arrives in front of an office for merrell lynch the financial services company it's an unassuming building but behind a large window is something that catches cohen's eye a stock ticker that's spitting out a list of today's stock prices on a ribbon of paper these days cohen is studying at the wharton business school at the university of pennsylvania he's working to get a degree in economics hoping that this diploma would be a golden ticket into the world of business and finance but cohen hasn't gone to a lecture in over a week the papers the historical case studies none of it feels relevant not when there's a real world out there with real businesses and million dollar deals happening every day so cohen has let go of the idea of being a student instead he's spending his nights playing poker at his fraternity house during the day cohen studies the financial pages of the local newspaper he watches companies like general motors and boeing as they rise and fall in value and that's why he's standing outside the office for merrill lynch watching the stock ticker earlier this morning cohen made some practice trades he's pretending to buy and sell stocks and now he waits to see whether his bets will pay off cohen focuses on the stock symbols coming out of the machine when out of the corner of his eye he notices someone approaching clean shaven older man in a suit a man steps in front of cohen tells him to move along he's a broker with merrill lynch and the company can't have people loitering out front but colin ignores the man says he's not leaving he's got as much right to learn about the new york stock exchange as the next guy cohen stares at the man waiting for a reprimand but to his surprise the broker just joins cohen at the window asking him how old he is and where he goes to school and before cohen realizes it he and the broker are talking like friends cohen explains that he's gotten good at reading the ticker tape he can predict the way the prices will go based on figures like the stock's volume the number of shares being traded the broker smiles as he watches the ticker tape and then he asks cohen what he's watching for collins got his eye on an oil company it was trading at 27.5 but khan believes it's about to lose value slip a quarter percent or even more the broker raises an eyebrow and then together at the two stare silently at the ticker tape watching and waiting soon the stock he's been waiting for tapped out of the ticker and cohen leaps back with a grin 27 even he was right the price dropped the broker smiles and tells cohen that he's impressive but if cohen really knows how to read the direction of the market he should come inside and invest some money it's an exciting time to get into the market if cohn can stomach a little risk cohen pauses he knows that risk goes both ways you could lose big but you could also win bigger so cohen makes up his mind he'll take a risk he'll invest real money the stock market has always seemed just like poker on a larger scale if cohen is as good as he thinks he is there's no reason to be afraid of a little risk it's 1978 in manhattan two years after watching that ticker tape in front of the merrill lynch building in the office of a wall street trading firm stephen cohen hangs up a phone he scribbles a couple figures on a yellow notepad and takes a deep breath gazing across the bustling office all throughout the room stock traders are barking orders into phones pacing around their desks the place is a pressure cooker but for cohen it doesn't get much better than this after graduating with a degree from the wharton business school cohen made the move he knew he was destined for he got a job trading stocks on wall street an old friend was running a department at a small firm called gruntal company and while it's not the most prestigious firm in new york cohen doesn't mind it's his chance to begin making a name for himself as a traitor cohen isn't planning to wait today is his first day on the job but has been given some tedious work he's conducting trades that are both low risk and mindless but cohen's eager to start turning a real profit and to prove to his boss and all the other traders that he's got what it takes colin just took a big risk and used company money to make a few trades on the side cohen glances at the clock it's 3 50 pm 10 minutes to the closing bell cohen then turns back to the quotron screen on his desk where quotes and prices dash across the screen a river of green numbers and letters against a black background cohen needs the trades he made to swing in the right direction because if they do he'll be up twelve thousand dollars but if he's wrong he'll lose the company's money and probably his job cohen fidgets in his chair as the minutes tick down as he reaches for a sip of coffee he feels a tap on his shoulder he turns to find his boss ron azer looming over his desk azer is a family friend and the reason cohen has the job right now the look on his face is anything but friendly scanning the numbers on cohen's screen azer snarls and he reminds cohen that employees aren't supposed to make side trades without authorization cohen shrinks in a seat he's about to offer a meek reply but when he looks back up he notices it's four o'clock trading has ended when cohen glances at the figure on his screen he becomes immediately clear he just made four thousand dollars probably stands to make another four thousand overnight cohen's boss sees the numbers too and shakes his head in disbelief it's true cohen broke the company's rules but azer isn't aware of any trader having made this much money on their first day he doesn't know whether to congratulate cohen or smack him in the head cohen barely conceals a grin and then he takes another risk asking his boss whether he can keep trading on the side azer pauses then nods for now he says cohen can keep it up and if he continues to do well soon enough he'll be done with the mindless tasks he was first assigned but cohen has to produce impressive results tomorrow the next day and every day after cohen says that won't be a problem and as his boss walks away cohen leans back and smiles it only took him one day but he's beginning to realize how this company works and how wall street works the only thing that matters is getting results no one cares if you bend or even break the rules as long as the money keeps rolling in [Music] it's 1985 in manhattan several years later stephen cohen is standing in front of a mirror fixing his hair and straightening his tie in just a few minutes he and his boss are going to sit down for what shore to be a contentious discussion a salary negotiation the conversation shouldn't come as a surprise all around them wall street is booming helped along by president ronald reagan's pro-business policies and cohen himself has continued to produce large profits for the firm with all of his success cohen recently received a promotion along with responsibility of running his own trading division cohen is finally getting the control he's always wanted but he also knows that a trader's value is measured by his salary and it's about time that cohen was properly compensated [Music] cohen enters the office and his boss ron azer looks up to greet him hey steve that's a nice tie ralph lauren i wish i could tell you my wife buys them i just put them on well isn't that how it goes with guys like us focused on the markets not menswear anyways come on in you wanted to talk yeah ron to start out i think we have a reason to celebrate things have been going really well with the new division well that's great news you know i'm proud of you steve you're not even 30 years old and already in the boss's chair yeah i'm happy that's no question but there is one thing the new promotion is great but the compensation is not steve you've got a more than generous package maybe but i keep delivering money to the firm i was thinking that i ought to take home 60 of profits from my division azer's mouth falls open in surprise steve last year you made five million dollars i wanna make more i'm sorry sixty percent is unheard of you've got a good deal you have complete autonomy half a dozen traders you can hire and fire at will that's not enough you know my contributions no one else was doing mergers and ipos before i started doing it you know i deserve 60 steve no one deserves anything okay fine that's true what i want you to think about my value information separates a good trade from a bad one and i get the information my rolodex covers the entire united states i'm the best trader in this firm and i could take my talents and my rolodex elsewhere there's a long pause as cohen's boss rubs a hand across his forehead all right steve um i'll run it up the chain okay okay good and thank you gone rises and heads to the door but steve i want you to pay very close attention to rule 10 b5 since you're so good at getting information 10b5 yeah i've read it look you may think you're some kind of rock star but you need to be careful with your sources i don't want this company on the wrong side of an investigation oh wrong trust me i'm always careful cohen turns and walked out of the office he meant what he said he is always careful and he will protect the company from any kind of federal investigation but cohen now runs his own division he's done taking orders from here on out he's going to play by his own rules [Music] american scandal is sponsored by the jordan harbinger show broadly speaking there are two types of podcasts narrative like american scandal which tells a story and then there's talk which is conversation driven interviews and chat and one of the best in the talk segment is the jordan harbinger show jordan dives into the minds of fascinating people from authors and scientists to mobsters and spies people who have made history and are making it today and pulls out bits of wisdom that can help you be a more informed critical thinker and the jordan harbinger show has a new episode almost daily so it would be daunting to know where to start unless you went to the jordanharbingershow.com start there you'll find some of his best episodes curated and presented by topic given today's climate you might want to listen to the episode what it's like to stand up to putin or compliment this month's celebration of women's history with the episode what is a girl worth from the women at the top of their game section you can't go wrong with adding the jordan harbinger show to your rotation it's incredibly interesting there's never a dull show so search for the jordan harbinger show that's h-e-r-b as in boy i n as in nancy ger on apple podcast spotify or wherever you listen to podcasts [Music] it's december 1985 in lower manhattan stephen cohen rises from his desk and steps out into the doorway of his office where he surveys a room full of stock traders they're all shouting into their phones staring nervously at screens as the day's stock prices rise and fall for cohen it's a beautiful sight this is his division all of these traders answered directly to him and so far their performance has been the source of envy and incredible profits and to bring in all these dollars cohen didn't turn to the wall street elite or anyone with an ivy league pedigree he put the word out that if you wanted to work for his division you only had to be a winner but winning isn't everything sometimes cohen feels like giving back with his success cohen has already helped out his brother who lives in florida getting him hired as an accountant for the firm but cohen knows he can do more so he picks up the phone and dials don cohen hey it's steve steve how are those manhattan winters gotta tell you it's 68 degrees and sunny here in florida oh that sounds nice but i tell you what i bet i can make your day even brighter oh yeah what you got rca radio corporation of america it's a buy oh really you want to explain that we're looking around it's a year of mergers and acquisitions everyone's buying someone else out spinning off some part of their company and i make a lot of money on it i want you to as well okay but but why rca they're conglomerate some technology but what's there well they're also the parent company of nbc we're talking television radio right for acquisition and if that happens the stock is going to go through the roof maybe 20 points so so i'm telling you to put in whatever you can oh well i don't know things are pretty tight down here that's why i'm trying to give you a leg up oh but it just feels risky don this is as certain as it gets how do you know you're a source no it doesn't matter i know people i hear things steve it does matter you got to be careful with these things especially if you make a lot of money cohen's size he's always careful with his tips and timing but he knows that other people including his brother have a lower tolerance for risk all right to ease your mind here's what i know the other night i met up with a buddy from wharton he mentioned that there might be some restructuring going on at nbc but it was nothing specific and there's nothing illegal about hearing someone speculate right i guess all right well just think about it i thought it'd be good to pass it along okay well thank you i i will think about it cohen hangs up the phone smiling to himself his brother don might have sounded concerned but cohen knows him too well don is probably calling his broker right now placing the orders he'll buy the shares and eventually he'll make a lot of money when that happens he'll have no one to thank but his brother steve [Music] it's late at night six months later and stephen cohen can't fall asleep he's in bed tossing and turning his mind racing finally after what feels like an eternity cohen gets out of bed and glances at the clock it's 2 am and even though he doesn't want to cohen is probably going to have to take another sleeping pill tonight cohen looks over at his wife patricia she's still sound asleep looking calm and untroubled but cohen knows that's just temporary as soon as she wakes up the fighting will start all over it's been that way for a while now seems like their marriage is only getting more and more rocky normally cohen would find peace by going into work studying the calming rhythms of the stock market but these days even work is no longer a place of refuge back in december cohen urged his brother to invest in rca the parent company of the broadcaster nbc cohen himself had also invested in the company and soon their bets paid off rca was acquired by general electric and the stock price soared cohen and his brother made a good deal of money but the celebration didn't last long the two were subpoenaed by the federal securities and exchange commission which asked them to testify about insider trading cohen knows that it could be a damaging interrogation the kind that his old boss ron azer had warned him about kind of threat that's keeping him up night after night [Applause] as cohn gets up and stumbles through the darkness of the bedroom makes his way to the bathroom and flips on the light going stares at himself in the mirror looking at his tired red eyes he's not sure how it all came to this he doesn't feel like he did anything wrong but it doesn't matter what he feels if the sec decides he's broken the law he could face huge fines or even time in jail and just the threat of such a punishment has him shaken for years cohen has felt invincible and his bank account has grown by millions of dollars seemed like nothing could stop him but now cohen can't even sleep and once again he's up in the middle of the night racked with anxiety [Applause] cohen reaches for the bottle of sleeping pills he doesn't want to take one feels like admitting defeat but if he has another sleepless night he'll be a wreck in the morning so closing his eyes going pops a pill and swallows it down with a gulp of cold water a minute later cohen is back in bed but his mind's still racing he's worried that he could be ruined professionally and his marriage might not survive but soon the sleeping pill starts to kick in and his mind grows soft and gauzy in his stupor cohen starts to believe that everything will be okay it'll all be fine he'll survive the investigation there won't be any prison time and even he and his wife will make it through this rocky patch better than ever a month later stephen cohen sits waiting in the lobby of 26 federal plaza in new york city the building houses the offices of several federal agencies and by now cohen has been waiting for what feels like hours cohen wipes his forehead as he looks around the office he suspects that this is all part of the government's game he's here to testify about his investments in rca a move that federal regulators seem to believe was a violation of insider trading laws but apparently the sec lawyers want to keep him waiting trying to rattle him before he comes in for his deposition but cohen's going to stay strong he can't lose this particular battle there's too much on the line so he waits patiently and stoically until finally cohen sees a man with silver hair approaching auto over admire as cohen's lawyer he says the sec is ready and it's time to testify on the record cohen and obermeyer step into an elevator and on the right up obermeyer reminds him of the strategy he needs to follow be polite be firm and deflect every question the sec asks cohen nods he knows the game plan he'll follow it to a t a minute later the elevator door opens and obermeyer leads cohen down a hallway into a conference room sitting behind a large table are two sec lawyers in front of them are large manila folders and when cohen takes a seat one of the government lawyers reaches over to a tape machine and hits record right away the sec lawyers ask pointed questions they want to know about the timing of cohen's rca trades they ask whether he knew about the impending takeover by general electric whether he got his tips from someone inside the company cohen exchanges a look with his lawyer then he issues the same response over and over one his lawyer drilled into him upon the advice of counsel i respectfully declined to answer the question on the ground that i'm being compelled to be a witness against myself each time cohen makes that statement the sec lawyers seem to lose a little more steam at just five minutes in both government lawyers look ready to give up it's not like cohen himself is enjoying this he doesn't like hiding or obscuring the truth he wishes he could tell these lawyers that his information is above board that they should go find someone else to harass but more than anything cohen wants to keep himself and his brother out of jail so he'll do what he has to do soon the deposition wraps up and as cohen follows his lawyer out of the room he feels cautiously optimistic his attorney seems to share the sentiment he tells cohen that he couldn't have done better the higher ups at his firm will be proud of him for keeping us cool the two ride the elevator back downstairs with cohen feeling buoyed by his lawyer's confidence but as he steps out into the lobby cohen is suddenly struck by a feeling of doubt maybe his lawyer is just putting up a good act pretending to be confident everyone's seen the news the sec has been putting pressure on a lot of powerful wall street traders people like dennis levine michael milken the old days of bending the rules for easy money might be coming to an end but as cohen steps out into the warm sunshine of the manhattan streets he lets his worry slip away for now he can only do one thing continue to make brilliant trades and churn out money for his clients cohen knows this may not be the last time he hears from the sec but today did offer another valuable lesson if the government tries coming after him again he only has to stay smart and make sure he's one step ahead american scandal is sponsored by better help online therapy relationships take work but we're willing to do the work to listen patiently and actively to help encourage and support there are people in our lives that are worth it but there's a lot of truth in that saying that you can't help others until you help yourself self-help self-care self-improvement self-image self-confidence it is not selfish to focus on yourself this month better help online therapy wants to remind you to take care of your most important relationship the one you have with yourself whether it's hitting the gym or making time for a haircut go get your hair cut or trying therapy you are your greatest asset so invest in yourself like you do other people better help is online therapy that offers video phone and even live chat sessions with your therapist so you don't have to see anyone on camera if you don't want to it's more affordable than in-person therapy and you can be matched with a therapist in under 48 hours give it a try and see why over 2 million people have used better help online therapy you can start right now american scandal listeners get 10 off their first month at betterhelp.com a s that's betterhelp.com as [Music] it's 1991 in a trendy manhattan italian restaurant and stephen cohen takes a sip from a glass of wine and smiles at alexandra garcia his date for the night cohen already likes garcia she's in her early 40s she's energetic and attractive but most importantly she's here sitting across the table from cohen and that seems like a minor miracle a year ago cohen divorced his wife patricia after the papers were final cohen didn't have any interest in going on a string of unsuccessful dates so he signed up for a dating service and the service sent out invitations to 20 different women cohen was hopeful he'd find a match but he only got one response from alexandra garcia who's sitting across the table from him now garcia twirls her pasta and takes a bite cohen smiles as he watches so far this date seems to be going well but cohen worries what will happen once the conversation turns to work for most people finance is as boring as it gets but even more cohen has learned to hold his cards close ever since the sec questioned him about insider trading cohen managed to escape then without facing charges but he's hesitant to talk about his job to anyone and he hopes he can somehow make it through dinner and drinks without having to address the subject [Music] the waiter pours another glass of wine and garcia looks at cohen with a smile you know what i like about you steve you're really listening this whole time i've been going on and all about myself but and we barely talked about you about your life well my life is pretty boring honestly well i don't believe that for a second tell me about work what do you do um i trade stocks i think that's fun you'd be one of the few no i've seen that movie what was it wall street oh yeah well it's just like that uh steve if it's not tell me what it is like well okay what do you want to know well start with the easy parts what what's the name of your company uh uh well i used to work at a firm called gruntle and company i was there for years but a few months back i struck out on my own oh wow an entrepreneur i suppose i mean it's a hedge fund uh sac capital you're gonna have to forgive me but i i don't know what a hedge fund is oh i'm sure most people don't um basically we get some investors you know you know people with lots of money and we take some of it and put it in the stock market but when we buy and sell stocks we go big and we do it fast the point is to always beat the market but we use risky strategies uh i mean it's technical cohen pauses unsure about how much to reveal oh i don't know alexandra i guess i mean it's exciting there's a lot of money that we get to work with but you know i'm not sure we're going to be successful garcia sets down her wine glass and locks eyes with cone steve you've been listening to me and paying attention but i've also been paying attention to you and i don't know anything about finance or stocks but i think i see someone who's going to be successful no matter what he does gosh i wish i could be as confident well i am confident you're going to be a huge success i look forward to seeing that happen for a moment cohen stares at garcia as he processes the implication it sounds like she wants to stick around and this may not be their one and only date and maybe garcia is right he has always been a winner and while it may take time and there will be forks in the road at some point cohen is sure that eventually he'll rise to the top of wall street a year later kenny lisac walks through a frozen yogurt shop in manhattan when he reaches the front of the line he leans forward inspecting the flavors trying to find something simple and good to make today less bad lesac is a traitor who used to work for gruntland company in stephen cohen's division but three years ago cohen asked if lisac wanted to jump ship and help him launch a new hedge fund blizzak's only question was how much he could invest he hasn't had many regrets since sac capital has been a wild success producing unthinkable results for investors year after year lisek has also relished the chance to work alongside cohen trader whose genius is not up for debate but today was a down day one of the worst lissac has ever seen he and cohen lost over two million dollars chasing a hunch they thought would pay off but it didn't and lissac isn't used to losing he wants to figure out where he and cohen went wrong so he grabs enough frozen yogurt for two and heads to the corner of the shop where stephen cohen is waiting at a small table lesac takes a seat and as the two men dig in the conversation turns inevitably to finance cullen begins by asking lisak what he thinks happened today how did everything go south so quickly the sack takes a spoonful and he thinks back to the events earlier a telecommunications company reported their earnings and both lissac and cohen agreed it would be a good time to take a large position in the company but almost immediately the company's price started to plummet within minutes it went from 38 dollars to 37 and then to 35 and as the price kept dropping cohen shouted to buy more shares it could be an opportunity but at 33 dollars a share blizzak started feeling queasy still cohen insisted they keep going finally when the stock had fallen to 31 dollars cohn himself seemed to recognize defeat it was then he told this act to cash out altogether they took a nearly 20 percent hit and that came out to about two million dollars a stunning loss that accrued over the course of just an hour now sitting meekly in a frozen yogurt shop this act tells khan what he believes really happened they got emotional they acted irrationally and it's as simple as that going nods he's seen it happen time and again fear and ego begin to kick in and emotion drives the decisions not reason but cohen tells lisak not to worry two million dollars isn't going to shut the company down and besides cohen admits that he was the one who made the call he can live with the mistake and the consequences but there is one more lesson to take away from today's disaster a lot of it came down to just bad intelligence their edge wasn't as good as cohen thought lesac nods he knows that for traders the word edge is just another way of saying good information when you have edge you have an intelligence that's unavailable to other traders it can be the difference between making a profit of five or fifty percent or losing two million dollars in an hour cohen crumples up his napkin and sets it in his empty cup he tells this act that things have to change if their hedge fund is going to stay ahead of the pack they're going to have to devote all their time all their energy to a single pursuit getting better edge they need to cultivate better sources on the inside of companies lissac raises an eyebrow he knows there's a fine line between getting good information and getting insider information if you trade stocks using information that's not available to the public you can be charged and sent to prison that's not a risk this act wants to take but when lissack raises this concern cohen says he's not talking about breaking any laws a phone call to an ex-employee at a t isn't breaking the law and it's not illegal to get dinner with a colleague whose brother works in microchips it's just networking it happens every day all across the world and that's what gives traders their edge lissac and cohen rise from the table and walk out into the early evening lisac has to remain cautious but he tells cohen that he agrees the company does need to cultivate more sources he's on board but privately lisac can't help but worry about what will happen that legal line gets crossed when innocent research becomes insider trading because while cohen might be a visionary he's not infallible today proved it and just like the stock market what goes up often comes down [Music] from wondering this is episode 1 of the fbi versus the hedge fund from american scandal in our next episode stephen cohen has to dodge trouble when a large stock trade goes awry and an fbi agent begins to suspect there's more to the success of sac capital than meets the eye if you'd like to learn more about stephen cohen and sac capital we recommend the book black edge by sheila cole hatkar this episode contains reenactments and dramatized details and while in most cases we can't know exactly what was said all our dramatizations are based on historical research american scandal is hosted edited and executed produced by me lindsey graham for airship audio editing by molly bach sound designed by derrick barrens music by lindsey graham this episode is written by george ducker edited by christina mallsburg our senior producer is gabe riven executive producers are stephanie jens jenny laura beckman and marshall louis for wondering

Channel: Wondery

Views: 5,404

Keywords: american scandal, wondery, wondery podcast, american scandal podcast, american scandal wondery, american scandal podcast wondery, american scandal steven cohen, steven a cohen, business insider, insider trading explained, insider trading scandal, hedge fund scandal, hedge fund manager, wondery steven cohen, wondery american scandal the fbi vs the hedge fund, fbi vs hedge fund, wall street scandals, wondery podcast american scandal, wondery american scandal, steve cohen

Id: fI1kaAHTeEQ

Length: 41min 32sec (2492 seconds)

Published: Tue Apr 19 2022