Morning folks, and welcome to today's episode called "Steven A. Cohen: The Master of Edge" — and the edge in the title refers to an advantage that Cohen had over the rest of the market, because he is considered without doubt one of the best intuitive traders ever. Good enough that he took home $3.5 billion last year, and rich enough to lose more than $1.5 billion in the whole GameStop short squeeze and just shrug it off. But is his wealth and success all down to skill, or does he cross the line, as prosecutors have tried to prove numerous times? It's a cracking story — enjoy.
Cohen was born on June 11, 1956, in Great Neck, Long Island. His father worked as a dress manufacturer in Manhattan's garment district, his mother was a piano teacher — middle-class professional. He was an okay student, but not brilliant.
Outside of school, poker was his big thing, and by all accounts he is a fantastic poker player. As a teenager, Cohen was making $500 to $1,000 dollars every night he played.
In 1974, he enrolled at the Wharton School of the University of Pennsylvania, where he studied economics. While there, Cohen became known as "The Stock Guy" because he started hanging around outside a Merrill Lynch office in downtown Philadelphia, watching the numbers of the New York Stock Exchange through the window.
In his own words: "You could see the trade happening. And later, not right away, I found I was pretty good at guessing which way those numbers would go." And he became obsessed with trading, because he found that he had a particular skill.
You see, Cohen is what is known as a "tape reader." Now this style of predicting the way shares would go has gone out of fashion with the advent of computerised systems, so it's a real old-fashioned way of doing things. But basically, a tape reader is somebody who bets on stocks based on an intuitive reading of the way the numbers are going — and he's widely believed to be the very best at this.
This is what Cohen said of tape reading, from an excellent Vanity Fair article by Bryan Burrough: "There's kind of an art to reading the tape. I can't really explain it; it's about pattern recognition. I'm not looking at anything. Just the numbers on the screen. I couldn't even tell you what the company did, and I don't care. I've always been intuitive like that. It was always seat-of-the-pants."
The problem with the way Cohen trades is that it's looked down on by most of Wall Street. You see, there's a kind of hierarchy. At the very top are the Warren Buffetts — the people who buy long term. They're seen as the seers, they have long-term vision, widely respected. In the middle is most of Wall Street — the hedge funds, private equity firms, investors who are investing in various ways to make a dollar: buyouts, holding onto shares for a few cycles or years, that kind of stuff. And then at the very bottom are the short-term traders, often referred to as day traders. There's snobbery here — they're seen as hustlers, no vision. Most of them aren't anywhere near as massively successful as Cohen, and it's for that very reason that Cohen has always been viewed with suspicion. How can a day trader get it right so often and so successfully? He must be dodgy, right? Or maybe he's just really good at what he does.
He graduated in 1978 and started working for Gruntal and Co., a mid-tier Wall Street brokerage, as a junior trader. On his very first day, he made an $8,000 profit — about $40,000 in today's money. Here's a quote from his boss: "I knew he was going to be famous within a week. I never saw talent like that." In just his second year he earned over $1 million dollars.
And again, just to underline how good he is, here's a quote from the CEO of a big firm that cleared many of Cohen's trades: "My conclusion is simply that the guy is an artist. I've sat and watched him trade, and I can tell you, without a doubt, he is the best that ever was at what he does. On the planet."
By 1983 — five years in — he was running a fifty million dollar portfolio and a team of six traders.
And apparently it was here that he perfected a tactic that traders call "Take the Street." According to former colleagues, Cohen would instruct lots of brokers to buy large blocks of the same stock at exactly the same time. Because all those brokers are buying at the same time, they burn through their available shares fast. To keep up with demand, they have to go back into the open market to buy more — and that wave of buying pushes the stock price up. Cohen then sells his shares into that rising price and takes the profit.
So what he was doing was creating a false impression of market demand. It is a form of market manipulation, but you could get away with it in the 1980s. And what we can see is that Cohen was more than willing to push the envelope, and as a result his first brush with the regulators happened in 1985.
General Electric was about to buy RCA — the parent company of NBC — for $6.4 billion. In the days before any public announcement was made, Cohen buys up a huge amount of RCA stock. When the deal is announced, he makes $9 million personally. The SEC got suspicious and they opened an investigation into potential insider trading.
When Cohen appeared before the SEC, he refused to answer any questions, more or less invoking the Fifth Amendment. You also have to remember this was 1985 — there were no mobile phone logs, no text messages, not even emails. So without a paper trail, and with Cohen saying nothing, the investigation was dropped.
Cohen continues to prosper. But his personal life is falling apart, and his divorce from his wife Patricia in 1988 became very acrimonious, mainly because she accused him of lying about his net worth. So initially Cohen declares a net worth of sixteen point nine million dollars. Then a few months later, he claims his net worth dropped to eight point two million as a result of a bad real estate investment. As a result, his ex-wife gets just one million in cash and an Upper East Side apartment. Now, years later she would sue Cohen, claiming that he fraudulently hid his true net worth and that he was involved in various tax fraud schemes. She also alleged that he had told her directly that he received inside information about the RCA merger. Anyway, his ex-wife's case was ultimately dismissed because there was no hard evidence against him.
So we're now in 1992. Cohen is 35, and he uses ten million dollars of his own savings and an additional $15 million from wealthy investors and he launched SAC Capital with nine employees.
Now the fee structure Cohen charged from day one was pretty extraordinary, and gives you an insight into how bullish Cohen was, but also into how well he was regarded — and this was backed by his performance, because from 1985 through 1992, he had only three losing months. The industry standard in terms of fees for hedge funds at the time was a two percent management fee and twenty percent of any profits, but Cohen charged a 3% fee and up to 50% of the profits — and investors were willing to pay it.
In the second full year, SAC generated a return of fifty-one percent. By 1999, SAC's assets under management was $1 billion, and the aggressive, fast style of SAC was ideally suited to the dotcom boom, where you had high volatility and fast-moving stocks. The firm returned 69% that year.
But everyone was winning at the time. Here's a quote from Cohen: "I used to say, in the 90s, all you had to do was show up. It was a bull market. You were bailed out of every mistake."
So it was when the bubble burst in March 2000 that Cohen's reputation sky-rocketed, because he got his timing just right. He pivoted aggressively to short positions just before the Nasdaq crashed, and SAC finished 2000 with a 73% return.
Like all high achievers, Cohen never rests on his laurels. Here's a quote from one of his colleagues: "I remember in January 2001, right after our best year ever, we had this management meeting, and Steve was pounding the table, going, 'We got nothing! We suck! We have to tear this place down!' Every January he's the same. He's just never been very impressed by what we've done."
But investors were impressed, literally queueing up to hand Cohen their money, and by 2002 SAC was managing about $4 billion.
Flush with money, SAC moved into its own fourteen-acre campus in Stamford, Connecticut. Cohen built a custom trading floor the size of a football field — high ceilings, no walls, no partitions, open floor planning, with his desk in the very middle of the floor. Because as one of his former traders said: "He's in the trenches every day with his traders. He's one of them. If the markets are tough, he's plugging away, and that's how he leads."
Cohen wanted to ensure that every variable that could be managed, was managed. For example, the temperature in the trading room was kept at sixty-nine degrees to prevent drowsiness, and the phones were modified so they lit up instead of ringing, because Cohen hated sudden loud noises — they broke his concentration.
Somewhat bizarrely, he also had what was called the "Steve-Cam." This was a live video feed set up at his desk, broadcast to a screen on every other employee's desk, so that they could observe his trading patterns and see exactly what he was doing.
Employees were organised into pods — each one a portfolio manager plus two or three analysts, working in isolation from every other pod. They weren't allowed to share ideas with each other.
SAC was also too big now to be operating under the simple read-the-tape model. A lot of these pods were taking massive, long-term bets based on deep, intense research — and it's this research, and how they got it, that leads to a whole load of trouble that I'll talk about soon. They were also using their fast-trading roots to exit or trade quickly on those bets as and when they got information about particular companies.
The way it worked is that each pod would have millions to invest and they were given a lot of autonomy. And if a pod had a trade that they believed had what they called a very high "conviction rating," then they would forward that to Cohen and he would trade it on his own personal account.
Now even by Wall Street standards, SAC was known as a tough place to work. If you didn't perform, you were gone. The system kept risk under control, but it also created enormous pressure to keep delivering, and critics argued that this pressure pushed people towards cutting corners.
According to Sheelah Kolhatkar, who wrote the excellent book Black Edge on Cohen: "It was not a place you went to have fun or because you loved your job. It was a place you went because you wanted to make a lot of money quickly."
SAC traders were among the best-paid on Wall Street. Successful portfolio managers could earn several million dollars a year, while the very top performers sometimes made tens of millions. As for Cohen himself — in 2001 he was paid $428 million, and in 2002 and 2003 he took home over $300 million each year, becoming a billionaire by 2003. And he lived in opulent style — a 35,000-square-foot mansion in Greenwich, Connecticut, with an outdoor ice skating rink.
Cohen also started spending serious money on art. He paid $110 million for Jasper Johns's Flag, and in 2012 he paid $150 million for a Picasso. In total, his collection is estimated to be worth anywhere between $1 and $2 billion. Now I know all of this would make you think that Cohen is like every other pretentious billionaire with airs and graces, but that really isn't the impression I get. In relation to art, he genuinely loves it — he buys paintings that might only cost a few thousand dollars as well. Apparently art gives him a distraction, it takes his mind off the stock market. A pretty expensive distraction, and paying those amounts seems a bit obscene to me, but he's also given over $1.3 billion to some very worthy causes like veterans' support and children's healthcare.
And all of the criticisms that I've read of Cohen come from those who don't know him personally or from prosecutors — and we'll get into that. Those who do know him talk about a very down-to-earth, loyal, unpretentious guy. Here's a quote from a lawyer who had been in a huge legal battle against Cohen and got to know him: he says Cohen is "a regular Long Island guy who's happened to make a shitload of money." He definitely doesn't look like a billionaire — he's a short, bald guy with glasses who dresses like an average guy.
Also, current and former employees who worked with him really like him, and here's a quote from one: "The people that he believed in, even if you were doing badly, he still supported you and tried to do everything possible to make your life easier. I don't know about other people and bosses, but that's the kind of boss you want to have."
So we're now into 2008. By this stage SAC is managing $16 billion, and despite their flexibility, even they got caught out in the 2008 financial crisis, posting their first ever loss of 18%.
But 2008 is significant to Cohen and SAC for another reason, because it was in this year that the firm conducted what prosecutors would call a large insider trading scheme.
So what's happening here is this. One of SAC's portfolio managers, Matthew Martoma, had been building a massive position — $700 million — in two pharmaceutical companies that were co-developing a drug to treat Alzheimer's.
Martoma had built a close relationship with an 80-year-old neurology professor who was part of what was called an expert network. Essentially what you had on Wall Street was these matchmakers — they found industry specialists for hedge funds so the hedge fund could pick the brains of these specialists, to get their feedback and input on various sectors or emerging technologies or drug developments.
Now legally, these paid experts are only supposed to discuss broad industry trends. But the thing is that the professor Martoma was talking to also chaired the safety monitoring committee that was responsible for the Alzheimer's drug trial.
And when you read the details of the case, it's clear that Martoma really quite slyly and cynically groomed the older professor. I mean, yes, the professor did earn about $100,000 dollars in fees from SAC, but he was very, very naive, and I really feel sorry for him, because it's pretty clear that he was manipulated. He even said that he saw Martoma more as a friend and a pupil.
So when the clinical trial results came back negative, the professor — naively believing he was talking to a friend — told Martoma everything, well before the results were released to the market. This was insider information.
Two days later, on a Sunday, Martoma emailed Cohen: "It's important that we speak." They spoke on the phone for twenty minutes. The exact contents of that call were never established. But on Monday morning, SAC started selling the entire $700 million position. And they also started shorting the stock — betting that the price would fall.
When the trial results were announced publicly, SAC's profit from the trade was $276 million dollars, and Martoma was paid a $9.3 million bonus.
Now, around the same time as that trade, a separate thread was developing at another part of SAC. A senior portfolio manager named Michael Steinberg had received information from his analyst about Dell's upcoming earnings, which would be negative. Cohen was looped into the email chain and, as a result, he sold his own Dell shares, avoiding a $1.7 million loss.
So all of this was happening in the aftermath of the financial crisis — millions of Americans had lost money, their houses, their jobs. People were angry, and rightly so, Wall Street was being blamed.
Enter stage left Preet Bharara, the U.S. Attorney for the Southern District of New York — an ambitious, media-savvy crusader — and he decided to go after the hedge funds and launched Operation Perfect Hedge.
His first scalp was Raj Rajaratnam, a billionaire hedge funder who ran Galleon. Investigators used wiretaps to prove he was using insider information, and he was sentenced to 11 years.
But SAC was the big target. Bharara wanted to take down Cohen. You see, SAC was by now one of the biggest and most influential hedge funds, and even though I mentioned that SAC had their first ever loss in 2008, by 2009 they bounced back with a 29% return, and that year Cohen took home $1.4 billion.
So that's enough to get anyone's attention. But there were other factors at play here — a former SAC trader was caught up in the Galleon scandal, there were two other cases brought against SAC in 2006 where they were accused of manipulation through underhand tactics, and while they were cleared in both cases, they could never shake the image of playing fast and loose.
This is because many on Wall Street had always been suspicious of Cohen. Some of it, I believe, was driven by envy, some of it driven by snobbery — they saw him as just a day trader, and felt that to be that successful he had to be dirty. But others pointed to the autonomy he gave his traders, and they believed that it was deliberate. He allowed them to gather information in whatever way they pleased, but he never asked them directly how they got it, and so that gave him plausible deniability.
Anyway, Bharara's investigation took years. By late 2012, eight SAC employees had been implicated in insider trading — including Steinberg, the guy behind the Dell trade, and Martoma, the guy behind the Alzheimer's drug trade.
Both Steinberg and Martoma were offered a deal — a get-out-of-jail-free card if they would just admit that Cohen ordered or knowingly approved illegal insider trades. Both men refused to do a deal.
Steinberg eventually got off because the information he had on Dell passed through so many people before it reached him that prosecutors couldn't prove he was using inside information.
With Martoma, I think his case is a bit more straightforward in that he had direct inside information — but what's not clear is whether he told Cohen directly about that information and how he got it.
My own take on this centres on that twenty-minute conversation with Cohen after Martoma got the results from the trial. For SAC to sell all $700 million dollars worth of shares and then take a short position the following day would suggest that Martoma had given Cohen some pretty clear assurances. So either Cohen asked him what information he was using and where he got it — which would mean Cohen was guilty of using insider information — or Cohen didn't ask, which would point to Cohen not wanting to know, because knowing the answer might implicate him.
But Martoma and Cohen maintained that in those twenty minutes they just had their normal portfolio-type discussion, and Martoma basically gave Cohen a high conviction rating for selling Elan, and that that was enough for Cohen. I mean, that's possible — it's just improbable.
Ultimately, Martoma was found guilty and served nine years in jail.
And the prosecutors, despite having Cohen's emails, phone records, and wire taps on his phone — everything — were unable to pin anything on him. So they changed strategy. First, the SEC took a civil case against Cohen, charging him with what's called a failure to supervise — basically arguing that even if Cohen didn't know exactly what his traders were doing, it was his job to ask, and he never did. I think that's a fair point.
Then the Department of Justice charged SAC Capital with wire fraud and securities fraud, claiming that SAC's business model was built around pursuing illegally obtained inside information — what the indictment called "black edge."
In the end, SAC settled with the Department of Justice, paying a $1.8 billion fine, and Cohen negotiated a two-year suspension from managing outside money, which expired in 2018.
SAC is long gone, and Cohen is now running Point72 — it manages $45 billion and continues to perform very strongly. So strongly, in fact, that in 2025 Cohen earned $3.4 billion — the highest annual earnings of any hedge fund manager in the world. That's around nine million dollars a day.
And he's not only spending his money on art. In 2020, Cohen bought the New York Mets baseball team for $2.4 billion dollars, and he's put an additional $2.5 billion into the team. While fans appreciate the ambition and willingness to spend, there's still frustration because, despite all the investment, the Mets have yet to win a World Series under his ownership.
His ownership saw a new side of Cohen emerge — a more public side — because he started to engage with fans through Twitter and earned the affectionate nickname "Uncle Steve."
But this new public Steve got into a very public spat when he found himself right in the middle of the GameStop shitstorm. It was January 2021, and a ragtag army of retail traders on Reddit's WallStreetBets orchestrated what is now a historic short squeeze, driving GameStop stock up dramatically.
Meanwhile, Melvin Capital, a hedge fund run by a former SAC star trader called Gabe Plotkin, had made a massive bet against GameStop — shorting it, betting the stock would collapse. And Cohen had $1 billion invested with Melvin. So when the squeeze was happening, Cohen — alongside Citadel's Ken Griffin — stepped in with a $750 million emergency bailout. Now Cohen didn't help the situation by goading the WallStreetBets traders on Twitter. In fact, he just emboldened them and inflamed the situation, and eventually GameStop shares rose by 1,700%, which broke Melvin. It had to sell out of its short position and close down, and Cohen ended up losing about $1.5 billion.
But with a current net worth of $23 billion, Cohen can afford it.
So where do you stand on Cohen? He's undeniably brilliant at what he does — by all accounts, one of the best. But man, in relation to crossing the line, there is a lot of smoke. Yet the fact remains that despite trading at the highest level for over 45 years, despite all the investigations, he has never been found guilty.
Now of course he could be 100% clean, but not even Cohen admits to that. In the Vanity Fair article, he more or less concedes that in the early days of SAC things were different and compliance wasn't very important.
My own read on it is that as SAC grew, Cohen very shrewdly put structures and processes in place that protected him. But there is definitely a valid suspicion around the autonomy he gave his traders and the lack of questioning in relation to the source of their information.
In terms of his personality — as I said, he does very few interviews, but of the ones that I've read, I kind of like the guy. Bryan Burrough, who wrote Barbarians at the Gate — my favourite business book ever — had the following to say about Cohen in an extensive article for Vanity Fair: "Of all the C.E.O.'s and billionaires I've met over the last 25 years, Cohen comes off as the most unpretentious."
And that's my read of him as well. There's very little ego — despite all of the money, the billion-to-two-billion dollar art collection, he comes across as someone who doesn't take himself too seriously. Except of course when it comes to trading.
Some might disagree, but whatever you think of Cohen, he makes for a fascinating story. And that brings us to listener emails, and this one comes from Larry, who would love me to do a story on Sam Zell — legendary billionaire real estate magnate — and he is some character, a brilliant suggestion Larry.
And remember, if you have any comments, any corrections, or any story that you'd like us to cover, email me at: info@gbspod.com
All the best, folks.