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To Catch a Predator
On July 25th SAC Capital, a hedge fund founded and run by Steven A. Cohen, was indicted for insider trading. Up until now, Cohen has managed to avoid being hauled off perp-style with his jacket over his head. Even after a number of his underlings began serving time, Cohen continued to enjoy the benefits of what is obviously a criminal enterprise. With all proportions guarded, his status reminds me of how holocaust deniers can make the case for Hitler even to this day. Where is there a document with Der Fuhrer ordering the gassing of Jews? By the same token, where is there an email indicating Cohen’s part in what by all admissions is standard operating practice in the financial industry? What do you think all those country clubs are for? To improve Joe Moneybags’s golf game? Don’t be silly. It is to pick up inside information through small talk that is never transcribed.
SAC Capital first came under investigation ten years ago when Holly B. Becker, a Lehman Brothers stock analyst, tipped off her husband Michael J. Zimmerman, who worked for Cohen, about Amazon. What? You expected them to not discuss such matters under the sheets? If you can’t tell your significant other about some hot tip during late night pillow talk, what good is a marriage that was reported on in the Sunday NY Times Style section? Ironically Holly told Michael that SAC should short Amazon Inc. because it was not a viable corporation and had no future. She should have gotten a refund from Wharton, or wherever she got an MBA from, for not knowing which way the wind was blowing.
Around the same time SAC Capital became newsworthy over such crimes, its CEO started getting written up as a player in the art world, a prime arena for the nouveau riche. On March 3, 2005 the New York Times reported on “A New Prince of Wall Street Uses His Riches to Buy Up Art”. This excerpt should give you a flavor for the cultural and moral rot of the incestuous hedge fund/museum board of trustees world:
Over the last five years, Mr. Cohen, 48, has spent more than $300 million — amassing a collection that includes one of Jackson Pollock’s iconic drip paintings, a Manet self-portrait, a Monet waterlilies painting and other trophy works including a Degas sculpture of a young dancer and well-known Pop works like Andy Warhol’s ”Superman” and Roy Lichtenstein’s ”Popeye.”
And most recently, in what may be a wink at his reputation for being one of Wall Street’s predatory traders, he paid $8 million for the British artist Damien Hirst’s 14-foot tiger shark, submerged in a tank of formaldehyde.
”He is a significant collector,” said Donald B. Marron, the chairman of Lightyear Capital and former chief executive of PaineWebber, who is also a trustee at the Museum of Modern Art and has seen Mr. Cohen’s collection. ”It’s a very personal collection, too. He is emotionally involved, has a good eye and knows the works in their context. Those are the ingredients that make a good collector.”
I would say that anybody who spent money on Damien Hirst’s shark submerged in formaldehyde is more visually afflicted than me, with my assortment of eye troubles including glaucoma, macular pucker and cataracts. If someone gave me $8 million just to put that junk in my living room, I’d tell them no thanks.
The Stuckists, a collective of British artists opposed to this kind of travesty offered up under the banner of the avant-garde, wrote a commentary titled “A Dead Shark isn’t Art” that made the case for Hirst plagiarizing a display in a hardware store’s window. See for yourself.
On the Tate Museum website, there’s an article by Luke White titled “Damien Hirst’s Shark: Nature, Capitalism and the Sublime” that sees Hirst as an anti-capitalist critic:
What I have argued here is that these ways of figuring contemporary anxieties about the penetration of the ‘natural’ world by technology are themselves possible on the basis of histories of representation in which the shark – and more generally the sublime, terrible nature of which it is a representative – has served as a displaced figure of the economic relations of capitalist modernity.
Back in the late 80s, when I worked at Goldman-Sachs, I always got a chuckle over an “anti-capitalist” work of art in the same transgressive spirit. In the cafeteria, there was a mini-gallery for some “daring” neon signs created by Barbara Kruger that teletyped slogans like “You think you can escape commodification — You can’t”. When I stood on line behind some bond salesman in a $1200 suit to get a serving of prime rib, I realized that Kruger had about as much effect on bourgeois society as a potted plant.
In 2006 Steven A. Cohen earned the dubious distinction of becoming a segment on “Sixty Minutes”. This was not the usual puff piece about some rich bastard who was making America a better place for inventing a better mousetrap but rather how Cohen had made a bundle through illegal stock manipulation. Leslie Stahl opened her investigation about how SAC had screwed Biovail, a Canadian pharmaceutical:
This is the story about a large company accusing another large company of deliberately trying to drive down its stock price to make money. If the allegations are true, it’s like fixing a game. The company being accused is one of the largest hedge funds in the world called SAC.
The alleged conspiracy began here in Arizona at Camelback, the stock-analysis firm that publishes supposedly impartial financial reports on various companies to help investors with advice about stocks. In the spring of 2003, the hedge fund SAC asked them for a report on Eugene Melnyk’s company, Biovail. Darryl Smith, a former Camelback salesman, says that during a conference call with an SAC trader, it became clear the hedge fund had an agenda.
Are they pretty clearly saying, `Give me something that’s going to drive the stock down’? Is that at least what you understood?
Darryl Smith told Stahl that there was no question as to SAC’s request. They sought false information that would depress the stock value and allow them to make a killing. In keeping with the spirit of the times, a judge threw out Biovail’s suit in 2009.
The spotlight on SAC was turned on again during a messy divorce trial that same year, when Cohen’s wife testified that Stevie, as he is known, was an inside trader who had concealed his fortune from her. On December 17th the NY Times reported:
In her complaint, filed in the Southern District of New York, Ms. Cohen asserts that for two decades Steven and Donald Cohen hid millions of dollars from her and tax authorities with the help of Brett K. Lurie, a lawyer for Mr. Cohen who became a partner in real estate deals. Mr. Lurie, who was convicted in 1994 on a range of charges and later caught in Costa Rica, could not be reached for comment on Wednesday.
Stevie came out of this unscathed but just one year later in November 2010 his real troubles began. The FBI began investigating hedge funds headed by his former employees who were connected to the Galleon Fund run by Raj Rajaratnam. Rajaratnam received an 11-year sentence for insider trading in 2011 and many analysts predict that the same fate awaits SAC principals, perhaps including Stevie, since emails and other documents point to a criminal network of hedge funds with SAC squatting at the top of the pile.
As a NY Mets fan, I am a bit concerned about the future of the team given this spreading blot. Most of you are probably aware that the Wilpons have been forced to cut back on player’s salaries since their investment in Bernie Madoff’s Ponzi scheme went bust. In recovering from this fiasco, who did they turn to? You guessed it, none other than Stevie who has become a 4 percent owner of the team. Just when the team’s fortunes have turned around, what bum luck it would be if his share were turned over to the government as restitution for ill-gotten gains. Another relatively big investor is Bill Maher, the lame Islamophobic comedian. With people like that funding the Mets, I am wondering if the NY Yankees are now the lesser evil. Cohen and Maher are definitely more unpalatable than Alex Rodriguez.
Last November the feds started closing in on Cohen as the NYT reported:
Over the last half-decade, as federal authorities secured dozens of insider trading convictions against hedge fund traders, they have tried doggedly to build a case against one of Wall Street’s most influential players: the billionaire stock picker Steven A. Cohen.
On Tuesday, the government appeared to inch closer to that goal. Prosecutors brought charges against a former portfolio manager at the hedge fund SAC Capital Advisors in a case that for the first time directly involves Mr. Cohen, the fund’s founder.
Mathew Martoma, a former portfolio manager at CR Intrinsic, a unit of SAC, was charged with making more than $276 million in a combination of illegal profits and avoided losses by obtaining secret information from a doctor about clinical trials for an Alzheimer’s drug being developed by the companies Elan and Wyeth.
The case is “the most lucrative insider trading scheme ever charged,” said Preet Bharara, the United States attorney in Manhattan, who brought the charges in Federal District Court in Manhattan.
The best one can hope for is Cohen getting arrested and thrown into the cell next to Bernie Madoff. It just might happen as the feds begin to figure out that a sacrificial lamb might assuage the anger of millions of Americans who have lost homes or jobs because of banksters like Cohen. Ironically there is little impact on homes or jobs from the criminal activities of SAC et al. While not exactly a victimless crime, the worst that can said about it in some ways is that it is simply a perk that goes along with being rich and connected. If you have already made millions and thus are able to join a snooty country club, you have a good shot at picking up some insider tip.
Politicians benefit from insider trading all the time. When Hillary Clinton made a bundle on cattle futures, some regarded that as a form of insider trading. Not surprisingly, President Obama has signed a law gutting regulations on politicians benefiting from insider trading as Firedoglake reported in April:
President Obama quietly signed legislation Monday that rolled back a provision of the STOCK Act that required high-ranking federal employees to disclose their financial information online.
The White House announced Monday that the president had signed S. 716, which repealed a requirement of the Stop Trading on Congressional Knowledge (STOCK) Act requiring the disclosure, which had previously been delayed several times by Congress.
One suspects that except for the occasional sacrificial lamb (or scorpion, to be more exact) like Raj Rajaratnam or Martha Stewart, insider trading will go on as long as there is a capitalist class.
In 1792 one William Duer became the first inside trader in American history. CNN reported:
Insider trading has a long history. William Duer, a British-born speculator, was the first to use inside information to game the markets. Duer was appointed by Alexander Hamilton as the assistant secretary of the Treasury. He quit the job, but used his inside intel to speculate on bank stocks. Then, in 1792, an audit of his treasury books turned up $238,000 of missing money. The government sued him for the sum, taking down Duer’s financial empire, and much of the New York Stock Exchange, causing the country’s first market crash.
The more things change, the more they remain the same.
Louis Proyect blogs at http://louisproyect.wordpress.com and is the moderator of the Marxism mailing list.
PS, if anybody has any hot stock tips, contact me at the Unrepentant Marxist.