The October 13, 2014 issue of The New Yorker includes a terrific piece by Patrick Radden Keefe that provides a fascinating look at the workings at SAC Capital, the high-profile prosecution of former SAC trader Mathew Martoma, and the government's intense pursuit of SAC founder Steve Cohen.

 

The piece focuses on the insider trading scandal that culminated in Martoma's February 2014 conviction by a federal jury in Manhattan on two counts of securities fraud and one count of conspiracy. The article goes well beyond the well-covered basic facts of the Martoma case, however, to offer some interesting insights into Martoma's deep relationship with a prominent doctor that allegedly led him to inside information. It also illustrates how the culture and structure of SAC Capital led it to become what prosecutors described as a “magnet for market cheaters,” facilitating insider trading “on a scale without known precedent in the hedge-fund industry.” 

Some other interesting highlights:

The FBI would tail suspects for weeks, Keefe writes, preparing to confront them to gain their cooperation against higher-level targets. "Then one day, as a suspect headed into a coffee shop and prepared to place his usual order, an agent would sidle up and place the order for him."

The FBI used successful Mob-fighting tactics to pursue SAC Capital and Cohen. Agents "created an organizational chart with names and faces, just as they had with La Cosa Nostra. At the top of the pyramid was Steven Cohen."

When the FBI finally confronted Martoma, they did so in his front yard. FBI agent B.J. Kang shocked Martoma by quickly mentioning "we know what you did at Harvard," a reference to Martoma' expulsion from Harvard Law School that he had successfully covered up for years. Martoma promptly fainted.

When Martoma regained consciousness, Kang then told him that the FBI knew about his alleged massive insider trading scheme, and moved aggressively to get Martoma to cooperate or risk significant jail time. “Your whole life is going to be turned upside down,” Kang said. “You’re going to lose all your friends, and your children are going to grow up hating you, because you’re going to live your years in a jail cell.” Kang asked Martoma to cooperate: “We want Steve Cohen,” he said.

Read the full article here.

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