Steven A. Cohen's SAC Capital Advisors was one of the biggest, most powerful and profitable hedge funds on Wall Street. Cohen himself is a legendary figure, replete with odd, personal eccentricities that are the hallmark of the truly brilliant.
Famous for spending hours as a younger man watching the tape roll by, and for keeping his Stamford, CT, trading floor at a steady 68 degrees, Steve Cohen made billions for his clients – and himself.
Now the sharks are circling, the dominos are falling – nearly any hackneyed metaphor a writer could think of to evoke a doomstruck sentiment applies.
The SEC and Manhattan U.S. Attorney Preet Bharara have pursued Cohen and SAC Capital with a rare, almost indecent zeal. The charge is insider trading, allegations which Cohen vehemently denies, but which the SEC is pursuing.
Good Money After Bad
SAC even took the huge step in March of settling – without admission of guilt – with the SEC watchdogs to the tune of $616 million dollars.
If Cohen, poor devil, thought that $616 million would buy him time or peace of mind, he's got quite another think coming. It's becoming clear that Cohen may have believed his payoff would work, as he paid the fine and promptly began acquiring everything from a Picasso to an East Hamptons pleasure dome.
With coffers bloated from their quarry's feverish – fruitless – payoff, the authorities keep on comin' on.
The conventional wisdom is that this is merely to avoid the appearance of being deferential, that if the media would've laid off of the SEC and the U.S. Attorney's office, then they might have laid off of SAC.
With a few notable exceptions – Mike Milken and Ivan Boesky come to mind – this is typically how these high finance dramatics play out; do a bad thing, pay a fine you can easily afford, take a public drubbing, and everyone walks away, free to sin anew.
But not this time.
Sometimes metaphors are hackneyed because they work really well. The dominos really are falling, and not Steve Cohen's way.
Even as Cohen, backed into a swiftly shrinking corner, remains un-prosecuted, five one-time SAC employees have copped pleas and been convicted for insider trading while at SAC.
It may be just a matter of time before Cohen finds a policeman with an arrest warrant at the steps of that Hamptons pleasure dome. Capital is gushing out of SAC by the minute, as high-profile investors take away their dolls and go down the street.
Is It Written In The Stars?
That this sort of epic fall from grace can happen to Steven Cohen tells us something about the nature of hedge funds.
Long a source of mystique and tremendous wealth, there's a certain je ne sais quoi there. This is due to the fact that hedge funds are often the creation of some fairly unique individuals.
And it does take rather an odd duck to conceive of, create, and successfully manage a highly exclusive, multi-billion dollar, money-making machine. You can bet that a survey of hedge fund managers would reveal some fairly unique personal quirks.
Is there something woven into the DNA of the big fund managers that makes them somehow prone to these mishaps? Is all that money and power inherently dangerous, or does it just do this to certain people?
The insider trading at SAC Capital is alleged to be "without precedent" in the hedge fund industry. Go big or go home seems to have been the order of the day in SAC's cool Stamford halls.
The Drug of the New Century
And are wealthy, accredited investors somehow more likely to slip on the fatal rose-colored glasses in their quest to keep their money at work? We live in a world where more or less every retail investor – not just those with megabucks – is on a relentless, hamster-like treadmill for yield.
Hedge funds taken as a whole, haven't done that much better than the S&P 500 itself. 78% returns? 45%? 18%? No. The average hedge fund returned a wheezing 6.2% in 2012. True, there were some fund managers who hit it out of the park.
The beleaguered midnight warriors of SAC Capital boasted of 13% returns, while Third Point netted its rarified investors 21.2% in 2012. John Paulson? Boaz Weinstein? They lost money last year.
While they may appear to bring home dazzling returns, or have the secrets of financial immortality, or ultimate power, some hedge fund managers – Steven A. Cohen in particular – really do have feet of clay.
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Hedge fund returns fall short in 2013
SAC Capital indicted in a blow to billionaire Steve Cohen