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Friday, 17 February 2017

The biggest insider trading case in history

This sounds a lot like a real-life version of the TV show “bns”: The largest ever known insider trading case in terms of actual profits was when Steven A Cohen’s SAC Capital made a profit and avoided losses of USD 275 mn. Sheelah Kolhatkar talks with Dave Davies about the case against Cohen on an episode of NPR’s excellent show, Fresh Air. Kolhatkar discusses her new book, Black Edge, which delves deep into the case and East coast hedge fund culture.

She says Cohen designed a system to help teach young employees the differences between different types of information. “There was white edge, which was essentially very readily available legal information that anyone could get… There was gray edge, which was in between. It was perhaps something you’d heard from an executive working at a company, but it wasn’t totally clear what they meant. It was sort of in this gray zone, and you weren’t necessarily sure it might be helpful. And then there was black edge, which was clearly inside information. It was material non-public information that was likely to move the stock.”

Kolhatkar says big hedge funds employ state-of-the-art technologies: “They are spending money on, you know, hiring people to watch truck traffic in and out of manufacturing facilities in China. They’re studying satellite imagery of parking lots in Wal-Marts across America … And they are willing to spend money to gain any type of advantage or to take advantage of any resource possibly available. I mean, they literally will hire people to install their own fiber optic cables so their trades can be executed faster.” After the case was uncovered, Cohen was forced to shut SAC down and to stop operating a hedge fund, but he was able to keep his USD 10 bn in personal wealth and operate a “family office” (runtime 35:42).

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