Read Black Edge Inside Information Dirty Money and the Quest to Bring Down the Most Wanted Man on Wall Street Sheelah Kolhatkar Books
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NEW YORK TIMES BESTSELLER • “An essential exposé of our times—a work that reveals the deep rot in our financial system . . . Everyone should read this book.”—David Grann, author of Killers of the Flower Moon ONE OF THE BEST BOOKS OF THE YEAR—The New York Times and The Economist • Finalist for the New York Public Library’s Helen Bernstein Book Award for Excellence in Journalism The hedge fund industry changed Wall Street. Its pioneers didn’t lay railroads, build factories, or invent new technologies. Rather, they made their billions through financial speculation, by placing bets in the market that turned out to be right more often than not. In hedge fund circles, Steven A. Cohen was revered as one of the greatest traders who ever lived. But that image was shattered when his fund, SAC Capital, became the target of a seven-year government investigation. Prosecutors labeled SAC a “magnet for market cheaters” whose culture encouraged the relentless pursuit of “edge”—and even “black edge,” which is inside information—and the firm was ultimately indicted and pleaded guilty to charges related to a vast insider trading scheme. Cohen, himself, however, was never charged.
Black Edge is a riveting legal thriller that raises urgent questions about the power and wealth of those who sit at the pinnacle of high finance and how they have reshaped the economy.
Longlisted for the Andrew Carnegie Medal for Excellence in Nonfiction and the Financial Times and McKinsey Business Book of the Year Award “A modern version of
Moby-Dick, with wiretaps rather than harpoons.”
—Jennifer Senior, The New York Times “If you liked James B. Stewart’s
Den of Thieves, Sheelah Kolhatkar’s thrilling
Black Edge should be next on your reading list.”
—The Wall Street Journal “Excellent.”
—The Economist “A true-life thriller with Shakespearian stakes . . . Her chilling account of a blighted industry is as mesmerizing as a human story as it is as a financial one.”
—Fortune “A tour de force of groundbreaking reporting and brilliant storytelling.”
—Jeffrey Toobin, New York Times bestselling author of American HeiressRead Black Edge Inside Information Dirty Money and the Quest to Bring Down the Most Wanted Man on Wall Street Sheelah Kolhatkar Books
"If you want to understand the depth of corruption that prevails on Wall Street, a good place to start is New Yorker staff writer Sheelah Kolhatkar‘s admirable new book, Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street.
A loathsome human being
The central character is this superb piece of investigative journalism is Steven A. Cohen, the founder of a hedge fund named SAC Capital Advisors. Cohen is clearly a loathsome human being—obsessed with greed, contemptuous of the law, and ruthless beyond compare. For example, here is an eyewitness account of a statement he made to the traders at his fund while in the midst of ugly divorce proceedings with his first wife. “‘I just got ripped off by my wife,’ he said . . . ‘I’m going to make it all back by cutting your payouts.'†This was not bluster: he actually did it, reducing their compensation from 30% of profits to 25% and increasing his own correspondingly. The author also notes that “he went out of his way to abuse people and belittle them.â€
However, Cohen is also undeniably brilliant. Occasionally he’s referred to as the greatest stock trader in Wall Street history. Cohen’s instinct is apparently matchless. Obviously, too, he was diabolically clever in shielding himself from responsibility for the illegal actions he forced his employees to take. After decade-long investigations by the FBI and the SEC, Cohen was forced to close down his hedge fund, but he escaped from prosecution, paying only a fine that was modest on the scale of his wealth. (Cohen is now estimated to have a net worth of $13 billion. That’s billion with a B.) Kolhatkar makes clear that despite his undisputed brilliance as a trader, he broke insider trading laws and regulations to gain most of his fortune.
How hedge funds operate
It helps to understand what hedge funds really are and what they do. Originally, hedge funds were designed to “hedge†or protect the assets of extremely wealthy individuals, pension funds, and other high-net-worth institutions. You can find an explanation of classic hedging strategies in plain English here. Over time, however, as the industry became more competitive, hedge fund managers increasingly gravitated away from investing and took up trading, eventually even trading in and out of stocks over fractions of a second. Kolhatkar explains that “the name hedge fund lost any connection to the careful strategy that had given such funds their name and came to stand, instead, for unregulated investment firms that essentially did whatever they wanted.â€
The role of hedge funds in the economy
Don’t make the mistake of thinking that hedge funds like Steve Cohen’s invested in the stock market like Main Street’s typical small investor. Kolhatkar quotes an email from one of Cohen’s traders three weeks before earnings of computer manufacturer Dell, Inc. were to be announced: “‘gm looking 17.5% vs. street 18.3%. Doesn’t sound good.'†In translation this jargon would read “Dell’s gross margin is anticipated by insiders to be 17.5% in the most recent quarter as opposed to estimates by Wall Street analysts of 18.3%.†In other words, this trivial difference in earnings for Dell for a three-month period would cause hundreds of millions, perhaps billions of dollars worth of the company’s shares to be sold, thus depressing its stock price. This means, of course, that Dell’s board of directors and top executives would do everything within their power to reverse that decline in the next quarter, regardless of the long-term consequences to the company, its employees, its investor-stockholders, and the economy at large. In this way, Wall Street distorts the American (and ultimately the world) economy. That makes no sense at all except for the gamblers who engage in day-to-day and minute-to-minute stock trading.
Given the complexity of the financial markets, it’s too easy to imagine that hedge funds are just one minor element of the problems they pose for the economy. “By 2015,†Kolhatkar writes, “hedge funds controlled almost $3 trillion in assets around the world and were a driving force behind the extreme wealth disequilibrium of the early twenty-first century.†A couple of numbers convey a sense of the magnitude of the problem caused by hedge funds: as Forbes magazine writes, “In total, the 25 highest-earning hedge fund managers and traders made a combined $12 billion in 2015.†The top earner, James Simons, logged an estimated total of $1.65 billion. In one year! The average top manager of a hedge fund earned nearly half a billion dollars that year.
Should there be an upper limit on compensation?
I recognize that many Americans are convinced there should be no upper limit on income. I disagree because I do not believe that anyone whatsoever could possibly provide enough benefit to society to warrant compensation of half a billion dollars a year—and because I know that such high levels of income are only possible because the U.S. tax laws are rigged to favor the superrich and disadvantage the rest of us. To grasp how much money these numbers represent, consider this: in 2015, the same year cited by Forbes, the single highest-paid corporate executive earned $156 million. Thus, the average top-25 hedge fund CEO received more than three times as much money. And I know no one who would pretend that $156 million represents fair compensation for anyone for a single year’s work.
Seeking a “black edgeâ€
In trading, hedge fund managers routinely came to seek out an information “edge†to reduce or eliminate the risk in their trades. As Kolhatkar explains, a “black edge†is information obtained in obviously illegal ways, such as paying a company insider for advance word of important developments in that company’s fortunes. “Gray edge [is] trickier. Any analyst doing his job well would come across this sort of information all the time. For example, an investor-relations person at a company might say something like ‘Yeah, things are trending a little lower than we thought . . .'†This may or may not constitute insider information. The lawyers decide. “White edge,†of course, is “readily available information that anyone could find in a research report or a public document.†Much, perhaps nearly all, the information on which Steve Cohen based his trades was on the “black edge.â€
Hedge funds and the corruption of the American economy
Kolhatkar did not pick Cohen and SAC Capital Advisors arbitrarily. The fund posted average gains of 30 percent per year over 20 years. Anyone who has investment experience knows that it’s virtually impossible to earn such high profits year after year for such a long period entirely by legal means. However, SAC Capital Advisors was in many ways typical of the hedge fund industry. Kolhatkar again: “When one trader was asked if he knew of any that didn’t traffic in inside information, he said: ‘No, they would never survive.'â€
The corruption fostered by the hedge fund industry extended far beyond Wall Street. In their scramble for insider information to give themselves a black edge, hedge fund managers bought off doctors throughout the country. “In 2005,†the author notes, “Journal of the American Medical Association published a finding that almost 10 percent of the doctors in the United States had paid ties to Wall Street investors . . . The unofficial number was probably much higher.â€
It’s difficult to imagine how any public official acquainted with these facts could seriously contend that Wall Street should be deregulated. Yet the elected leadership of the United States seems hell-bent on doing just that.
About the author
Sheilah Kolhatkar was recently interviewed by the New York Times Book Review. The interviewer notes that she “worked in the late 1990s and early 2000s as an analyst at a couple of small hedge funds. . .†As she told the interviewer on the phone, even then she “heard people talking about the trader Steven A. Cohen and the stellar returns at SAC Capital, which he began in 1992.†Kolhatkar explained why she left the hedge fund industry after the dot-com bust and went into print journalism instead. “I could not handle the stress of making imperfect decisions based on incomplete information with other people’s money . . . I didn’t have the personality for it.†Before signing on with The New Yorker in 2016, Kolhatkar was a features editor and national correspondent at Bloomberg Businessweek."
Product details - Paperback 368 pages
- Publisher Random House Trade Paperbacks; Reprint edition (January 23, 2018)
- Language English
- ISBN-10 0812985796
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Black Edge Inside Information Dirty Money and the Quest to Bring Down the Most Wanted Man on Wall Street Sheelah Kolhatkar Books Reviews :
Black Edge Inside Information Dirty Money and the Quest to Bring Down the Most Wanted Man on Wall Street Sheelah Kolhatkar Books Reviews
- This is a book giving great insight into the American phenomena of the rich getting richer by any means and doing so with impunity. According to the author, there are three different types of edge, or information a hedge fund trader can obtain before trading a securty. There's "white" edge, which is information known to the general public that anyone can find; there is "gray edge", or information that's not quite proprietary, but only available to people familiar with the inside workings of a particular company; and finally there is "black edge", which is proprietary, supposed to be held in confidence, and can have clear positive or negative impact on a stock's price. The latter is illegal, of course, and the essence of insider trading, but also the trader who uses black edge information has a distinct advantage over the millions common folk investors. Some of the characters working for SAC finally did receive justice by falling on their swords and refusing to cooperate with the SEC, whether through loyalty towards or fear of, or both, of Steven Cohen. Ultimately, this book is about SAC and Steven Cohen, and company and its founder who made unheard of profits year over year through the constant use of "black edge." Some paid the price, however Cohen never did. In America, billionaires can do virtually whatever they want, and they influence our lives more than we realize.
If you're interested in white-collar crime, particularly securities fraud, you are probably familiar with "Den of Thieves," and excellent account of the excesses of Wall Streets Masters of the Universe in the 1980s, like Michael Milken. "Black Edge" is a 21st century continuation of the tale, with the main difference being that the bad guy not only eludes justice, but he continues to prosper,unlike what happened to Michael Milken. "Black Edge" reads like a cross between crime fiction and a primer on high finance, meaning it's tautly written, the story flows beautifully, and the author Sheelah Kolhatkar weaves together an extremely complex array of characters into a well structured and easily comprehended narrative. Any negative review I've read of this book up to February 17, 2017 is entirely bogus and illegitimate, written by people who know, or are the people themselves, who are painted in an unflattering light in this book. Don't expect a feel good book with a justice prevails outlook, however. In 21st century America, with the undoubted further de-regulation of Wall Street that is to come in the future, those that think laws are for suckers will continue to prosper at the little guy's expense.
P.S. anyone who has read thus far and takes exception to the political overtones of my review, please keep this in mind I'm very well versed in Libertarian free market economics, as I've read a few classics, such as "Free to Choose" and "The Road to Serfdom"; while the free market is in theory a beautiful idea, in practice it's simply my opinion that the Steven Cohen's of the world need at least some regulations to help equalize the opportunity for all trading in the securities market, and to keep them from distorting the market forces grossly in their favor. I want to keep my review as apolitical as possible, and respect the views of anyone reading this. I hope it comes across that way. - If you want to understand the depth of corruption that prevails on Wall Street, a good place to start is New Yorker staff writer Sheelah Kolhatkar‘s admirable new book, Black Edge Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street.
A loathsome human being
The central character is this superb piece of investigative journalism is Steven A. Cohen, the founder of a hedge fund named SAC Capital Advisors. Cohen is clearly a loathsome human being—obsessed with greed, contemptuous of the law, and ruthless beyond compare. For example, here is an eyewitness account of a statement he made to the traders at his fund while in the midst of ugly divorce proceedings with his first wife. “‘I just got ripped off by my wife,’ he said . . . ‘I’m going to make it all back by cutting your payouts.'†This was not bluster he actually did it, reducing their compensation from 30% of profits to 25% and increasing his own correspondingly. The author also notes that “he went out of his way to abuse people and belittle them.â€
However, Cohen is also undeniably brilliant. Occasionally he’s referred to as the greatest stock trader in Wall Street history. Cohen’s instinct is apparently matchless. Obviously, too, he was diabolically clever in shielding himself from responsibility for the illegal actions he forced his employees to take. After decade-long investigations by the FBI and the SEC, Cohen was forced to close down his hedge fund, but he escaped from prosecution, paying only a fine that was modest on the scale of his wealth. (Cohen is now estimated to have a net worth of $13 billion. That’s billion with a B.) Kolhatkar makes clear that despite his undisputed brilliance as a trader, he broke insider trading laws and regulations to gain most of his fortune.
How hedge funds operate
It helps to understand what hedge funds really are and what they do. Originally, hedge funds were designed to “hedge†or protect the assets of extremely wealthy individuals, pension funds, and other high-net-worth institutions. You can find an explanation of classic hedging strategies in plain English here. Over time, however, as the industry became more competitive, hedge fund managers increasingly gravitated away from investing and took up trading, eventually even trading in and out of stocks over fractions of a second. Kolhatkar explains that “the name hedge fund lost any connection to the careful strategy that had given such funds their name and came to stand, instead, for unregulated investment firms that essentially did whatever they wanted.â€
The role of hedge funds in the economy
Don’t make the mistake of thinking that hedge funds like Steve Cohen’s invested in the stock market like Main Street’s typical small investor. Kolhatkar quotes an email from one of Cohen’s traders three weeks before earnings of computer manufacturer Dell, Inc. were to be announced “‘gm looking 17.5% vs. street 18.3%. Doesn’t sound good.'†In translation this jargon would read “Dell’s gross margin is anticipated by insiders to be 17.5% in the most recent quarter as opposed to estimates by Wall Street analysts of 18.3%.†In other words, this trivial difference in earnings for Dell for a three-month period would cause hundreds of millions, perhaps billions of dollars worth of the company’s shares to be sold, thus depressing its stock price. This means, of course, that Dell’s board of directors and top executives would do everything within their power to reverse that decline in the next quarter, regardless of the long-term consequences to the company, its employees, its investor-stockholders, and the economy at large. In this way, Wall Street distorts the American (and ultimately the world) economy. That makes no sense at all except for the gamblers who engage in day-to-day and minute-to-minute stock trading.
Given the complexity of the financial markets, it’s too easy to imagine that hedge funds are just one minor element of the problems they pose for the economy. “By 2015,†Kolhatkar writes, “hedge funds controlled almost $3 trillion in assets around the world and were a driving force behind the extreme wealth disequilibrium of the early twenty-first century.†A couple of numbers convey a sense of the magnitude of the problem caused by hedge funds as Forbes magazine writes, “In total, the 25 highest-earning hedge fund managers and traders made a combined $12 billion in 2015.†The top earner, James Simons, logged an estimated total of $1.65 billion. In one year! The average top manager of a hedge fund earned nearly half a billion dollars that year.
Should there be an upper limit on compensation?
I recognize that many Americans are convinced there should be no upper limit on income. I disagree because I do not believe that anyone whatsoever could possibly provide enough benefit to society to warrant compensation of half a billion dollars a year—and because I know that such high levels of income are only possible because the U.S. tax laws are rigged to favor the superrich and disadvantage the rest of us. To grasp how much money these numbers represent, consider this in 2015, the same year cited by Forbes, the single highest-paid corporate executive earned $156 million. Thus, the average top-25 hedge fund CEO received more than three times as much money. And I know no one who would pretend that $156 million represents fair compensation for anyone for a single year’s work.
Seeking a “black edgeâ€
In trading, hedge fund managers routinely came to seek out an information “edge†to reduce or eliminate the risk in their trades. As Kolhatkar explains, a “black edge†is information obtained in obviously illegal ways, such as paying a company insider for advance word of important developments in that company’s fortunes. “Gray edge [is] trickier. Any analyst doing his job well would come across this sort of information all the time. For example, an investor-relations person at a company might say something like ‘Yeah, things are trending a little lower than we thought . . .'†This may or may not constitute insider information. The lawyers decide. “White edge,†of course, is “readily available information that anyone could find in a research report or a public document.†Much, perhaps nearly all, the information on which Steve Cohen based his trades was on the “black edge.â€
Hedge funds and the corruption of the American economy
Kolhatkar did not pick Cohen and SAC Capital Advisors arbitrarily. The fund posted average gains of 30 percent per year over 20 years. Anyone who has investment experience knows that it’s virtually impossible to earn such high profits year after year for such a long period entirely by legal means. However, SAC Capital Advisors was in many ways typical of the hedge fund industry. Kolhatkar again “When one trader was asked if he knew of any that didn’t traffic in inside information, he said ‘No, they would never survive.'â€
The corruption fostered by the hedge fund industry extended far beyond Wall Street. In their scramble for insider information to give themselves a black edge, hedge fund managers bought off doctors throughout the country. “In 2005,†the author notes, “Journal of the American Medical Association published a finding that almost 10 percent of the doctors in the United States had paid ties to Wall Street investors . . . The unofficial number was probably much higher.â€
It’s difficult to imagine how any public official acquainted with these facts could seriously contend that Wall Street should be deregulated. Yet the elected leadership of the United States seems hell-bent on doing just that.
About the author
Sheilah Kolhatkar was recently interviewed by the New York Times Book Review. The interviewer notes that she “worked in the late 1990s and early 2000s as an analyst at a couple of small hedge funds. . .†As she told the interviewer on the phone, even then she “heard people talking about the trader Steven A. Cohen and the stellar returns at SAC Capital, which he began in 1992.†Kolhatkar explained why she left the hedge fund industry after the dot-com bust and went into print journalism instead. “I could not handle the stress of making imperfect decisions based on incomplete information with other people’s money . . . I didn’t have the personality for it.†Before signing on with The New Yorker in 2016, Kolhatkar was a features editor and national correspondent at Bloomberg Businessweek. - This is a gripping account of a colossal insider trading scandal. It reads well and provides a great deal of insight into the processes both of gaining inside information and of prosecuting those alleged to have benefited from this. It comes across as a sort of drama - perhaps with movie rights in mind - and the author spends no time on the many ramifications from the drama, and that is her prerogative. My principal criticism is that the book is clearly written from the perspective of the prosecutors and seems to be something of a spin for them. (PLOT SPOILER!) Their major target escaped completely and remains at liberty as one of the world's wealthiest individuals. continuing to trade with impunity. The book does rather come across as an excuse for the failure to prosecute such a high profile suspect and is very light on criticism of the prosecutors for allowing him to get away. My subordinate criticism is that Cohen is painted as a sort of pantomime villain, who gets booed every time he steps on stage. I have no doubt that all the ugly facts presented about him are true, simply because no publisher would risk libelling someone as wealthy as this. However, one suspects that the author has chosen to omit favourable aspects of his character and so he comes across as two- rather than three-dimensional. For example, the author has a great dramatic subplot in that his first wife, in a sort of "nor hell a fury like a woman scorned" moment, fed damning evidence to the prosecutors and filed a lawsuit alleging that she had been defrauded in the divorce settlement. The ex-wife's side is given much coverage, but the fact that her lawsuit was dismissed gets just a short sentence. These, however, are minor points this is one of the most gripping books I have read this year and I am happy to recommend it.
