Library:Black Edge
| Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street | |
|---|---|
| Author | Sheelah Kolhatkar |
| First published | 2017 |
| ISBN | 978-0-8129-9580-0 unverified |
| Role | Analysis |
| Domains | Business, Finance & Scams Crime & Public Safety |
| Tactics | Fraud or Scam |
Black Edge is a 2017 book by Sheelah Kolhatkar.
Summary
Sheelah Kolhatkar, a former hedge fund analyst and staff writer at The New Yorker, examines the US government's long investigation into insider trading at SAC Capital Advisors, the hedge fund founded by Steven A. Cohen. SAC was one of the most successful hedge funds in history, known for consistently high returns. The book's title refers to a Wall Street term for inside information that is illegal to trade on, as opposed to legitimate research advantages.
The fund
Cohen founded SAC Capital in 1992 and built it into a firm managing billions of dollars, with returns that far outpaced most competitors. Kolhatkar describes a culture that pushed portfolio managers and analysts to find an "edge," information that others did not have, and rewarded those who delivered profitable trades.
The investigations
Kolhatkar follows FBI agents and federal prosecutors in New York who spent years investigating insider trading at hedge funds, using wiretaps and cooperating witnesses, techniques more commonly used against organized crime. The central case involved Mathew Martoma, an SAC portfolio manager who obtained confidential information about clinical trial results for an Alzheimer's drug being developed by Elan and Wyeth from a doctor involved in the trial. SAC sold its large positions before the disappointing results became public, avoiding losses and earning profits estimated at about $275 million. Martoma was convicted in 2014.
The outcome
In 2013 SAC Capital pleaded guilty to insider trading charges and agreed to pay $1.8 billion in penalties, then one of the largest such settlements, and to stop managing outside money. Several employees were convicted or pleaded guilty, though some convictions were later overturned on appeal after a court narrowed the legal definition of insider trading. Cohen was never criminally charged. He settled a civil case with the SEC that barred him from managing outside money until 2018, after which he launched a new firm, Point72, and later bought the New York Mets.
Relevance to Bullshitopedia
Black Edge raises questions about how extraordinary returns are achieved and how difficult it is to hold powerful figures accountable. It shows that spectacular, consistent success in markets can sometimes rest on information that others are legally barred from using.
Related entries
- Bernie Madoff's steady returns
- Den of Thieves (Stewart)
- Fooled by Randomness (Taleb)