American Scandal - The FBI vs. the Hedge Fund | A Game of Poker | 1

Episode Date: March 15, 2022

Steven Cohen wants to escape his small life on Long Island. The destination in sight: Wall Street.Need more American Scandal? With Wondery+, enjoy exclusive seasons, binge new seasons first, and listen completely ad-free. Start your free trial in the Wondery App, Apple Podcasts, Spotify or visit wondery.app.link/IM5aogASNNb now.See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

You're listening to the first episode of this American Scandal season. With Wondery+, you can binge the remaining episodes, listen to new episodes early, and explore more exclusive seasons completely ad-free. Start your free trial of Wondery Plus in the Wondery app, Apple Podcasts, or, three. It's the evening of November 8th, 2011, and B.J. Kang is driving down a suburban street outside Boca Raton, Florida. Kang is an FBI agent with a short crew cut and a form-fitting suit. As he drives through southeast Florida,

he gazes out at the palm trees swaying in the warm evening breeze. Tonight, Kang is over a thousand miles from his office in Manhattan. But he's not here on vacation. Kang and his partner at the FBI are looking for the home of a former Wall Street trader named Matthew Martoma, a man they believe is guilty of financial crimes. Soon, Kang reaches a two-story mansion at the end of a cul-de-sac. It's built like some Spanish castle, the kind of place that comes with marble floors and an elevator. And while Kang's never been inside, he already knows what the interior looks like. Because for five years, Kang has been investigating Martoma. He knows almost

everything there is to know about the former traitor. And what it all comes down to is that Martoma broke one of the most important rules on Wall Street. He engaged in insider trading, a crime that could send him to prison. But tonight, Kang's not here to make an arrest. Because even though Martoma committed a felony, the former traitor could play a key role in a much larger investigation. Kang is hoping that he can get Martoma to flip, to rat out his old boss, a man named Stephen Cohen. Cohen is the biggest hedge fund trader in the United States, and he appears to be gaming the

market, running an operation that profits off bribes and illegally acquired information. And if Kang is successful, if he can pressure Martomo to admit the truth about his old boss, the FBI will be one step closer to bringing down Cohen's empire. Kang opens the door to his rental car and steps out into the humid evening air. He and his partner approach the mansion's front door, and Kang straightens the lapels of his jacket. After ringing the doorbell, Kang waits. A minute passes with no answer, so he rings the doorbell again. It doesn't seem like anyone's home, but they've come too far

to turn back now, so Kang and his partner stand on the front steps, waiting. An hour passes, and Kang starts to feel himself losing patience. But then a car pulls into the driveway, and a man with short cropped black hair steps out alongside his wife. Can I help you? Yes, Mr. Martoma. I'm Special Agent B.J. Kang. We're from the FBI. We'd like to speak with you about a former business associate. FBI? It's not really a good time. Mr. Martoma, I'm afraid it can't wait. We need to speak to you about something sensitive, and we should probably go somewhere private. What's this all about? We're here because you worked for SAC Capital from 2006 to 2010. That's correct, right? Yeah, that's right. I was a trader. And you worked for Stephen

Cohen in the firm's healthcare division. Yeah, that's right too, but that was a long time ago. I moved on from Cohen and SAC. So what is this about really? Kang exchanges looks with his partner. It's time to show his cards. Mr. Martomo, we're here to talk about insider trading. We know about the Wyeth and Elon trades. We know you sold your shares just in time and made a large profit. And we know your tips came from someone on the inside. What? No, I'm sorry. Could you just... Martoma leans against the doorway, suddenly looking fatigued. Mr. Martoma, are you okay? I'd like to sit down. I'm not, I'm not. But Martoma doesn't finish getting his words out.

His eyes go glassy, and suddenly he faints and collapses. Mr. Martoma. Matthew. Matthew. Can you hear me? Kang tells his partner they might need an ambulance. Martoma might have just suffered a stroke or a heart attack. And if he did, it's not just Martoma's life that's in danger.

He could imperil Kang's entire investigation. But just as his partner's about to dial for the ambulance, Kang notices Martoma's eyelids begin to flutter. Then they open and Kang smiles. His potential informant is going to be fine. He must have been overwhelmed with the accusation. His own body has all but admitted the truth. But Kang will be careful in further questioning.

He can't have Martoma faint again. Still, if all goes according to plan, by the end of this evening, Kang will have more than enough information to go after Stephen Cohen, his hedge fund SAC Capital, and the illegal financial empire they've built. In the past decade, Boeing has been involved in a series of scandals and deadly

crashes that have dented its once sterling reputation. At the center of it all, the 737 Max, the latest season of Business Wars, explores how Boeing allowed things to turn deadly and what, if anything, can save the company's reputation. Make sure to listen to Business Wars wherever you get your podcasts. From Wondery, I'm Lindsey Graham, and this is American Scandal. The 1980s and 90s were a boom time for traders on Wall Street. Some investors grew staggeringly rich, and the American economy expanded at record pace. But one firm, SAC Capital Advisors, distinguished itself from the pack.

Year after year, this hedge fund produced mesmerizing profits. Other investors on Wall Street couldn't figure out the secret behind the success at SAC and how Stephen Cohen, the hedge fund's founder, became one of the most powerful men in finance. But in a world where good intelligence can help produce huge returns, rumors began that Cohen had a network of insiders who traded him secret information, helping him become a billionaire multiple times over. Cohen's winning streak wouldn't last forever. The FBI and other government agencies began a years-long investigation into Cohen and insider trading, culminating with a series of high-stakes trials. In the eyes of the public, it was a test to see whether Wall Street could actually be policed.

But before he faced off against the authorities, and before the world grappled with the huge power of hedge funds, Stephen Cohen was a young man with a talent for numbers and a burning desire to win. This is Episode 1, A Game of Poker. It's the early 1970s and a humid day in Great Neck, New York. Stephen Cohen is about to head into his senior year of high school. But today, he's stuck working a summer job, stocking shelves at the Bohack supermarket.

And he has to be on his feet for hours, going aisle to aisle, sticking price tags on cans of corn, boxes of cereal, and stacking them on the shelves. It's mind-numbing work. But it's not the worst job, because it gives Cohen time to think about the one thing that truly matters to him,

winning at poker. As he stacks cans in his head, Cohen begins dealing imaginary hands of cards, trying to figure out how to win. For Cohen, there's nothing like poker. He loves to compute numbers and probability, and the thrill of getting it right is like an addiction. But Cohen also knows he has a special gift. He can spot the other player's tells, the hidden language of the body,

sighs and frowns, nervous tapping on the table. And while he has a strong intuition, Cohen also knows that to win at poker, you need an informational edge. And that's why he keeps playing imaginary hands in his head, trying to game out all possible outcomes. Practice and probability make perfect. And that matters because tonight Cohen is going to meet with some of the neighborhood guys. They often stay up gambling until dawn. A lot of money gets exchanged, and Cohen wants to win as much of it as he possibly can. Cohen is playing through another imaginary hand in his head, when suddenly his train of thought is interrupted. The floor manager of the grocery store appears in front of Cohen,

reeking of cigarette smoke. He grabs a price gun out of Cohen's hand, and with a look of frustration, he points out that the cans are mislabeled. Cohen got the price wrong. Cohen winces. It isn't like him to make a careless mistake like that. He tries to play it off, joking that his brain is a bit mushy after all the repetitive work. But the manager doesn't smile.

Instead, he warns Cohen that he needs to be more careful or he'll find he's out of a job. But Cohen laughs at the threat. It sounds like a bluff. The floor manager repeats himself, though. Cohen cannot slip up. It may seem like a matter of nickels and dimes, but it adds up to real money for the grocery store. Cohen is about to make another wisecrack, but the floor manager turns and stalks off, leaving him alone with stacks of mispriced canned food. Cohen returns to work, knowing full well that the manager is right.

Nickels and dimes do add up to real money, at least here in a place like Great Neck. Even when Cohen wins big at poker, he only takes home a few extra dollars, a small amount of spending money. It's nothing life-changing. Nothing like the kind of money Cohen knows you can make across the river in Manhattan. Cohen starts slapping new price tags on each can of corn. But with his hands aching and his mind turning again to numbers, Cohen makes a promise to himself. He's going to get through this summer,

and he's going to start and finish his senior year of high school. But then, he's going to find his way into Manhattan and start playing for real money. and start playing for real money. It's 1976, and Stephen Cohen crosses a busy street in downtown Philadelphia. He arrives in front of an office for Merrill Lynch, the financial services company. It's an unassuming building, but behind a large window is something that catches Cohen's eye, a stock ticker that's spitting out a list of today's stock prices on a ribbon of paper.

These days, Cohen is studying at the Wharton Business School at the University of Pennsylvania. He's working to get a degree in economics, hoping that this diploma would be a golden ticket into the world of business and finance. But Cohen hasn't gone to a lecture in over a week. The papers, the historical case studies, none of it feels relevant. Not when there's a real world out there, with real businesses and million-dollar deals happening every day. So Cohen has let go of the idea of being a student.

Instead, he's spending his nights playing poker at his fraternity house. During the day, Cohen studies the financial pages of the local newspaper. He watches companies like General Motors and Boeing as they rise and fall in value. And that's why he's standing outside the office for Merrill Lynch, watching the stock ticker. Earlier this morning, Cohen made some practice trades. He's pretending to buy and sell stocks. And now he waits to see whether his bets will pay off. Cohen focuses on the stock symbols coming out of the machine, when out of the corner of his eye, he notices someone approaching, a clean-shaven older man in a suit. The man steps in front of Cohen and tells him to move along.

He's a broker with Merrill Lynch, and the company can't have people loitering out front. But Cohen ignores the man and says he's not leaving. He's got as much right to learn about the New York Stock Exchange as the next guy. Cohen stares at the man, waiting for a reprimand. But to his surprise, the broker just joins Cohen at the window, asking him how old he is and where he goes to school. And before Cohen realizes it, he and the broker are talking like friends. Cohen explains that he's gotten good at reading the ticker tape.

He can predict the way the prices will go based on figures like the stock's volume, the number of shares being traded. The broker smiles as he watches the ticker tape. He can predict the way the prices will go based on figures like the stock's volume, the number of shares being traded. The broker smiles as he watches the ticker tape. And then he asks Cohen what he's watching for. Cohen's got his eye on an oil company. It was trading at 27 and a half, but Cohen believes it's about to lose value, slip a quarter percent or even more.

The broker raises an eyebrow. And then together, the two stare silently at the ticker tape, watching and waiting. Soon, the stock he's been waiting for taps out of the ticker, and Cohen leaps back with a grin. $27 even. He was right. The price dropped. The broker smiles and tells Cohen that he's impressive. But if Cohen really knows how to read the direction of the market, he should come inside and invest some money. It's an exciting time to get into the market if Cohen can stomach a little risk. Cohen pauses. He knows that risk goes both ways. You could lose big, but you could also win bigger. So Cohen makes up his mind. He'll take a risk.

He'll invest real money. The stock market has always seemed just like poker on a larger scale. And if Cohen is as good as he thinks he is, there's no reason to be afraid of a little risk. It's 1978 in Manhattan, two years after watching that ticker tape in front of the Merrill Lynch building. In the office of a Wall Street trading firm, Stephen Cohen hangs up a phone. He scribbles a couple figures on a yellow notepad and takes a deep breath, gazing across the bustling office. All throughout the room, stock traders are barking orders into phones, pacing around their desks. The place is a

pressure cooker, but for Cohen, it doesn't get much better than this. After graduating with a degree from the Wharton Business School, Cohen made the move he knew he was destined for. He got a job trading stocks on Wall Street. An old friend was running a department at a small firm called Gruntel & Company. And while it's not the most prestigious firm in New York, Cohen doesn't mind. It's his chance to begin making a name for himself as a trader. Cohen isn't planning to wait. Today is

his first day on the job, but has been given some tedious work. He's conducting trades that are both low risk and mindless. But Cohen's eager to start turning a real profit. And to prove to his boss and all the other traders that he's got what it takes, Cohen just took a big risk and used company money to make a few trades on the side. Cohen glances at the clock. It's 3.50 p.m., 10 minutes to the closing bell. Cohen then turns back to the Quotron screen on his desk, where quotes and prices dash across the screen, a river of green numbers and letters against a black background. Cohen needs the trades he made to swing in the right direction. Because if they do, he'll be up $12,000.

But if he's wrong, he'll lose the company's money and probably his job. Cohen fidgets in his chair as the minutes tick down. As he reaches for a sip of coffee, he feels a tap on his shoulder. He turns to find his boss, Ron Azor, looming over his desk.

Azor is a family friend, and the reason Cohen has the job. Well, right now the look on his face is anything but friendly. Scanning the numbers on Cohen's screen, Azor snarls, and he reminds Cohen that employees aren't supposed to make side trades without authorization. Cohen shrinks in his seat. He's about to offer a meek reply, but when he looks back up, he notices it's four o'clock. Trading has ended. When Cohen glances at the figure on his screen, he becomes immediately clear. He just made $4,000 and probably stands to make another $4,000 overnight. Cohen's boss sees the numbers too and shakes his head in disbelief. It's true Cohen broke the company's rules,

but Azar isn't aware of any trader having made this much money on their first day. He doesn't know whether to congratulate Cohen or smack him in the head. Cohen barely conceals a grin, and then he takes another risk, asking his boss whether he can keep trading on the side. Azar pauses, then nods. For now, he says, Cohen can keep it up, and if he continues to do well, soon enough he'll be done with the mindless tasks he was first assigned. But Cohen has to produce impressive results, tomorrow, the next day, and every day after.

Cohen says that won't be a problem, and as his boss walks away, Cohen leans back and smiles. It only took him one day, but he's beginning to realize how this company works and how Wall Street works. The only thing that matters is getting results. No one cares if you bend or even break the rules,

as long as the money keeps rolling in. It's 1985 in Manhattan, several years later. Stephen Cohen is standing in front of a mirror, fixing his hair and straightening his tie. In just a few minutes, he and his boss are going to sit down for what's sure to be a contentious discussion, a salary negotiation. The conversation shouldn't come as a surprise. All around them, Wall Street is booming, helped along by President Ronald Reagan's pro-business policies, and Cohen himself has continued to produce large profits for the firm.

With all of his success, Cohen recently received a promotion, along with the responsibility of running his own trading division. Cohen is finally getting the control he's always wanted. But he also knows that a trader's value is measured by his salary. And it's about time that Cohen was properly compensated. Cohen enters the office, and his boss, Ron Azor, looks up to greet him. Hey, Steve. Oh, that's a nice tie.

Ralph Lauren? I wish I could tell you. My wife buys them. I just put them on. Well, isn't that how it goes with guys like us? Focused on the markets, not menswear. Anyways, come on in. You wanted to talk?

Yeah, Ron. To start out, I think we have a reason to celebrate. Things have been going really well with the new division. Well, that's great news. You know, I'm proud of you, Steve. You're not even 30 years old and already in the boss's chair. Yeah, I'm happy. That's no question. But there is one thing.

The new promotion is great, but the compensation is not. Steve, you've got a more than generous package. Maybe, but I keep delivering money to the firm. I was thinking that I ought to take home 60% of profits from my division. Azar's mouth falls open in surprise. Steve, last year you made $5 million. I want to make more. I'm sorry, 60% is unheard of.

You've got a good deal. You have complete autonomy. Half a dozen traders you can hire and fire at will. That's not enough. You know my contributions. No one else was doing mergers and IPOs before I started doing it. You know I deserve 60%. Steve, no one deserves anything.

Okay, fine. That's true. But I want you to think about my value. Information separates a good trade from a bad one, and I get the information. My Rolodex covers the entire United States. I'm the best trader in this firm. And I could take my talents in my Rolodex elsewhere. There's a long pause as Cohen's boss rubs a hand across his forehead. All right, Steve. I'll run it up the chain, okay? Okay, good, and thank you.

Cohen rises and heads to the door. But Steve, I want you to pay very close attention to Rule 10b-5, since you're so good at getting information. 10b-5? Yeah, I've read it. Look, you may think you're some kind of rock star, but you need to be careful with your sources. I don't want this company on the wrong side of an investigation. Oh, Ron, trust me, I'm always careful. Cohen turns and walks out of the office.

He meant what he said. He is always careful. And he will protect the company from any kind of federal investigation. But Cohen now runs his own division. He's done taking orders. From here on out, he's going to play by his own rules. He was hip-hop's biggest mogul. The man who redefined fame, fortune, and the music industry. The first male rapper to be honored on the Hollywood Walk of Fame, Sean Diddy Cone.

Diddy built an empire and lived a life most people only dream about. Everybody know ain't no party like a Diddy party, so. Yeah, that's what's up. But just as quickly as his empire rose, it came crashing down. Today I'm announcing the unsealing of a three-count indictment, charging Sean Combs with racketeering conspiracy,

sex trafficking, interstate transportation for prostitution. I was f***ed up. I hit rock bottom. But I made no excuses. I'm disgusted. I'm so sorry. Until you're wearing an orange jumpsuit, it's not real. Now it's real. From his meteoric rise to his shocking fall from grace, from law and crime, this is the rise and fall of Diddy.

Listen to the rise and fall of Diddy exclusively with Wondery Plus. I'm Jake Warren, and in our first season of Finding, I set out on a very personal quest to find the woman who saved my mom's life. You can listen to Finding Natasha right now exclusively on Wondery Plus. In season two, I found myself caught up in a new journey to help someone I've never even met. But a couple of years ago, I came across a social media post by a person named Loti. It read in part, three years ago today that I attempted to jump off this bridge, but this wasn't my time to go. A gentleman named Andy saved my life. I still haven't found him. This is a story that I

came across purely by chance, but it instantly moved me. And it's taken me to a place where I've had to consider some deeper issues around mental health. This is season two of Finding, and this time, if all goes to plan, we'll be finding Andy. You can listen to Finding Andy and Finding Natasha exclusively and ad-free on Wondery+. Join Wondery in the Wondery app, Apple Podcasts or Spotify. It's December 1985 in Lower Manhattan. Stephen Cohen rises from his desk and steps out into the doorway of his office, where he surveys a room full of stock traders. They're all shouting into their phones, staring nervously at screens as the day's stock prices rise and fall.

For Cohen, it's a beautiful sight. This is his division. All of these traders answer directly to him. And so far, their performance has been the source of envy and incredible profits. And to bring in all these dollars, Cohen didn't turn to the Wall Street elite or anyone with an Ivy League pedigree. He put the word out that if you wanted to work for his division, you only had to be a winner. But winning isn't everything. Sometimes Cohen feels like giving back. With his success, Cohen has already helped out his brother, who

lives in Florida, getting him hired as an accountant for the firm. But Cohen knows he can do more. So he picks up the phone and dials. Don Cohen. Hey, it's Steve. Steve, how are those Manhattan winters? Gotta tell you, it's 68 degrees and sunny here in Florida. Oh, that sounds nice, but I tell you what, I bet I can make your day even brighter. Oh yeah, what you got? RCA, Radio Corporation of America. It's a buy. Oh really? You want to explain that? Well, look around. It's a year of mergers and acquisitions. Everyone's buying someone else out, spinning off some part of their company, and I make a lot of money on it.

I want you two as well. Okay, but why RCA? They're a conglomerate. It's some technology, but what's there? Well, they're also the parent company of NBC. We're talking television, radio, right for acquisition. And if that happens, the stock is going to go through the roof. Maybe 20 points.

So? So I'm telling you to put in whatever you can. Oh, well, I don't know. Things are pretty tight down here. That's why I'm trying to give you a leg up. Oh, but it just feels risky. Don, this is as certain as it gets. How do you know? You have a source? No, it doesn't matter. I know people. I hear things. Steve, it does matter. You got to be careful with these things,

especially if you make a lot of money. Cohen sighs. He's always careful with his tips and timing, but he knows that other people, including his brother, have a lower tolerance for risk. All right, to ease your mind, here's what I know. The other night, I met up with a buddy from Wharton. He mentioned that there might be some restructuring going on at NBC, but it was nothing specific. And there's nothing illegal about hearing someone speculate, right? I guess. All right, well, just think about it.

I thought it'd be good to pass it along. Okay, well, thank you. I will think about it. Cohen hangs up the phone, smiling to himself. His brother Don might have sounded concerned, but Cohen knows him too well. Don is probably calling his broker right now, placing the orders. He'll buy the shares, and eventually, he'll make a lot of money. And when that happens, he'll have no one to thank but his brother Steve. And when that happens, he'll have no one to thank but his brother, Steve. It's late at night, six months later, and Stephen Cohen can't fall asleep.

He's in bed, tossing and turning, his mind racing. Finally, after what feels like an eternity, Cohen gets out of bed and glances at the clock. It's 2 a.m., and even though he doesn't want to, Cohen is probably going to have to take another sleeping pill tonight. Cohen looks over at his wife, Patricia. She's still sound asleep, looking calm and untroubled. But Cohen knows that's just temporary. As soon as she wakes up, the fighting will start all over.

It's been that way for a while now. Seems like their marriage is only getting more and more rocky. Normally, Cohen would find peace by going into work, studying the calming rhythms of the stock market. But these days, even work is no longer a place of refuge. Back in December, Cohen urged his brother to invest in RCA, the parent company of the broadcaster NBC. Cohen himself had also invested in the company. And soon, their bets paid off. RCA was acquired by General Electric, and the stock price soared. Cohen and his brother made a good deal of money. But the celebration didn't last long.

The two were subpoenaed by the Federal Securities and Exchange Commission, which asked them to testify about insider trading. Cohen knows that it could be a damaging interrogation, the kind that his old boss Ron Azor had warned him about. The kind of threat that's keeping him up night after night. As Cohen gets up and stumbles through the darkness of the bedroom, he makes his way to the bathroom and flips on the light. Cohen stares at himself in the mirror, looking at his tired red eyes. He's not sure how it all came to this. He doesn't feel like he did anything wrong, but it doesn't matter what he feels. If the SEC decides he's broken the

law, he could face huge fines or even time in jail. And just the threat of such a punishment has him shaken. For years, Cohen has felt invincible, and his bank account has grown by millions of dollars. It seemed like nothing could stop him. But now Cohen can't even sleep, and once again he's up in the middle of the night, wracked with anxiety. Cohen reaches for the bottle of sleeping pills. He doesn't want to take one. It feels like admitting defeat. But if he has another sleepless night, he'll be a wreck in the morning. So closing his eyes, Cohen pops a pill and swallows it down with a gulp of cold water. A minute later, Cohen is back in bed, but his mind still racing. He's worried that he could be ruined professionally, that his marriage might not survive.

But soon, the sleeping pill starts to kick in, and his mind grows soft and gauzy. In his stupor, Cohen starts to believe that everything will be okay. It'll all be fine. He'll survive the investigation. There won't be any prison time. And even he and his wife will make it through this rocky patch better than ever. A month later, Stephen Cohen sits waiting in the lobby of 26 Federal Plaza in New York City. The building houses the offices of several federal Plaza in New York City. The building houses the offices of several federal agencies, and by now Cohen has been waiting for what feels like hours. Cohen wipes his forehead as he looks around the office. He suspects that this is all

part of the government's game. He's here to testify about his investments in RCA, a move that federal regulators seem to believe was a violation of insider trading laws. But apparently the SEC lawyers want to keep him waiting, trying to rattle him before he comes in for his deposition. But Cohen's going to stay strong. He can't lose this particular battle. There's too much on the line. So he waits patiently and stoically until finally Cohen sees a man with silver hair approaching. Otto Obermeier is Cohen's lawyer. He says the SEC is ready, and it's time to testify on the record. Cohen and Obermeier step into an elevator, and on the ride up, Obermeier reminds him of the

strategy he needs to follow. Be polite, be firm, and deflect every question the SEC asks. Cohen nods. He knows the game plan. He'll follow it to a tee. A minute later, the elevator door opens, and Obermeyer leads Cohen down a hallway into a conferencer. Sitting behind a large table are two SEC lawyers. In front of them are large manila folders,

and when Cohen takes a seat, one of the government lawyers reaches over to a tape machine and hits record. Right away, the SEC lawyers ask pointed questions. They want to know about the timing of Cohen's RCA trades. They ask whether he knew about the impending takeover by General Electric and whether he got his tips from someone inside the company. Cohen exchanges a look with his lawyer. Then he issues the same response over and over, the one his lawyer drilled into him. Upon the advice of counsel,

I respectfully decline to answer the question on the ground that I'm being compelled to be a witness against myself. Each time Cohen makes that statement, the SEC lawyers seem to lose a little more steam. At just five minutes in, both government lawyers look ready to give up. It's not like Cohen himself is enjoying this. He doesn't like hiding or obscuring the truth. He wishes he could tell these lawyers that his information is above board, that they should go find someone else to harass. But more than anything, Cohen wants to keep himself and his brother out of jail. So he'll do what he has to do. Soon, the deposition wraps up,

and as Cohen follows his lawyer out of the room, he feels cautiously optimistic. His attorney seems to share the sentiment. He tells Cohen that he couldn't have done better. The higher-ups at his firm will be proud of him for keeping us cool. The two ride the elevator back downstairs, with Cohen feeling buoyed by his lawyer's confidence.

But as he steps out into the lobby, Cohen is suddenly struck by a feeling of doubt. Maybe his lawyer is just putting up a good act, pretending to be confident. Everyone's seen the news. The SEC has been putting pressure on a lot of powerful Wall Street traders, people like Dennis Levine and Michael Milken. The old days of bending the rules for easy money might be coming to an end. But as Cohen steps out into the warm sunshine of the Manhattan streets, he lets his worries slip away. For now, he can only do one thing, continue to make brilliant trades and churn out money for his clients.

Cohen knows this may not be the last time he hears from the SEC. But today did offer another valuable lesson. If the government tries coming after him again, he only has to stay smart and make sure he's one step ahead. On January 5th, 2024, an Alaska Airlines door plug tore away mid-flight, leaving a gaping hole in the side of a plane that carried 171 passengers. This heart-stopping incident was just the latest in a string of crises surrounding the aviation manufacturing giant, Boeing. In the past decade, Boeing has been involved in a series of damning scandals and deadly crashes that have chipped away at its once sterling reputation.

At the center of it all, the 737 MAX. The latest season of Business Wars explores how Boeing, once the gold standard of aviation engineering, descended into a nightmare of safety concerns and public mistrust. The decisions, denials, and devastating consequences bringing the Titan to its knees and what, if anything, can save the company's reputation. Now, follow Business Wars on the Wondery app or wherever you get your podcasts. You can binge Business Wars, The Unraveling of Boeing, early and ad-free right now on Wondery Plus. It's 1991 in a trendy Manhattan Italian restaurant, and Stephen Cohen takes a sip from a glass of wine

and smiles at Alexandra Garcia, his date for the night. Cohen already likes Garcia. She's in her early 40s, and she's energetic and attractive. But most importantly, she's here, sitting across the table from Cohen, and that seems like a minor miracle. A year ago, Cohen divorced his wife, Patricia. After the papers were final, Cohen didn't have any interest

in going on a string of unsuccessful dates. So he signed up for a dating service and the service sent out invitations to 20 different women. Cohen was hopeful he'd find a match, but he only got one response from Alexandra Garcia, who's sitting across the table from him now.

Garcia twirls her pasta and takes a bite. Cohen smiles as he watches. So far, this date seems to be going well, but Cohen worries what will happen once the conversation turns to work. For most people, finance is as boring as it gets. But even more, Cohen has learned to hold his cards close ever since the SEC questioned him about insider trading. Cohen managed to escape then without facing charges. But he's hesitant to talk about his job to anyone, and he hopes he can somehow make it through dinner and drinks without having to address the subject. The waiter pours another glass of wine, and Garcia looks at Cohen with a smile.

You know what I like about you, Steve? You're really listening. This whole time I've been going on and on about myself, but we barely talked about you, about your life. Well, my life is pretty boring, honestly. Well, I don't believe that for a second. Tell me about work. What do you do? Um, I trade stocks. I think that's fun. You'd be one of the few. Oh, I've seen that movie. What was you do? I trade stocks. I think that's fun. You'd be one of the few. Oh, I've seen that movie. What was it? Wall Street. Oh, yeah. Well, it's just like that.

Steve, if it's not, tell me what it is like. Well, okay. What do you want to know? Well, start with the easy parts. What's the name of your company? Well, I used to work at a firm called Gruntle and Company. I was there for years. But a few months back, I struck out on my own. Oh, wow, an entrepreneur. I suppose. I mean, it's a hedge fund. SAC Capital.

You're going to have to forgive me, but I don't know what a hedge fund is. Oh, I'm sure most people don't. Basically, we get some investors, you know, people with lots of money, and we take some of it and put it in the stock market. But when we buy and sell stocks, we go big and we do it fast.

The point is to always beat the market. But we use risky strategies. I mean, it's technical. Cohen pauses, unsure about how much to reveal. Oh, I don't know, Alexandra. I guess, I mean, it's exciting. There's a lot of money that we get to work with. But, you know, I'm not sure we're going to be successful.

Garcia sets down her wine glass and locks eyes with Cohen. Steve, you've been listening to me and paying attention. But I've also been paying attention to you. And I don't know anything about finance or stocks. But I think I see someone who's going to be successful no matter what he does. Gosh, I wish I could be as confident. Well, I am confident. You're going to be a huge success.

And I look forward to seeing that happen. For a moment, Cohen stares at Garcia as he processes the implication. It sounds like she wants to stick around. And this may not be their one and only date. And maybe Garcia is right. He has always been a winner. And while it may take time and there will be forks in the road, at some point Cohen is sure that eventually he'll rise to the top of Wall Street.

A year later, Kenny Lissack walks through a frozen yogurt shop in Manhattan. When he reaches the front of the line, he leans forward, inspecting the flavors, trying to find something simple and good to make today less bad. Lissac is a trader who used to work for Gruntal & Company in Stephen Cohen's division. But three years ago, Cohen asked if Lissac wanted to jump ship and help him launch a new hedge fund. Lissac's only question was how much he could invest. He hasn't had many regrets since. SAC Capital has been a wild success, producing unthinkable results for investors year after year. Lissak has also relished the chance to work alongside Cohen, a trader whose genius is not up for debate. But today was a down day, one of the worst Lissak has ever seen.

He and Cohen lost over $2 million, chasing a hunch they thought would pay off. But it didn't. And Lissak isn't used to losing. He wants to figure out where he and Cohen went wrong. So he grabs enough frozen yogurt for two and heads to the corner of the shop, where Stephen Cohen is waiting at a small table. Lissak takes a seat, and as the two men dig in, the conversation turns inevitably to finance. Cohen begins by asking Lissac what he thinks happened today.

How did everything go south so quickly? Lissac takes a spoonful, and he thinks back to the events earlier. A telecommunications company reported their earnings, and both Lissac and Cohen agreed it would be a good time to take a large position in the company. But almost immediately, the company's price started to plummet. Within minutes, it went from $38 to $37, and then to $35. And as the price kept dropping, Cohen shouted to buy more shares. It could be an opportunity.

But at $33 a share, Lissak started feeling queasy. Still, Cohen insisted they keep going. Finally, when the stock had fallen to $31, Cohen himself seemed to recognize defeat. It was then he told Lissak to cash out. Altogether, they took a nearly 20% hit, and that came out to about $2 million, a stunning loss that accrued over the course of just an hour. Stunning loss that accrued over the course of just an hour. Now, sitting meekly in a frozen yogurt shop, Lissak tells Cohen what he believes really happened.

They got emotional. They acted irrationally. And it's as simple as that. Cohen nods. He's seen it happen time and again. Fear and ego begin to kick in, and emotion drives the decisions, not reason. But Cohen tells Lissak not to worry.

Two million dollars isn't going to shut the company down. And besides, Cohen admits that he was the one who made the call. He can live with the mistake and the consequences. But there is one more lesson to take away from today's disaster. A lot of it came down to just bad intelligence. Their edge wasn't as good as Cohen thought. Lissak nods. He knows that for traders, the word edge is just another way of saying good information. When you have edge, you have an intelligence that's unavailable to other traders. It can be the difference between making a profit of 5 or 50 percent or losing

$2 million in an hour. 50%, or losing $2 million in an hour. Cohen crumples up his napkin and sets it in his empty cup. He tells Lissac that things have to change. If their hedge fund is going to stay ahead of the pack, they're going to have to devote all their time, all their energy to a single pursuit, getting better edge. They need to cultivate better sources on the inside of companies. Lissac raises an eyebrow. He knows there's a fine line between getting good information and getting insider information. If you trade stocks using information that's not available to the public, you can be charged and sent to prison.

That's not a risk Lissack wants to take. But when Lissack raises this concern, Cohen says he's not talking about breaking any laws. A phone call to an ex-employee at AT&T isn't breaking the law, and it's not illegal to get dinner with a colleague whose brother works in microchips. It's just networking. It happens every day, all across the world. And that's what gives traders their edge. Lissack and Cohen rise from the table and walk out into the early evening. Lissac has to remain cautious, but he tells Cohen that he agrees.

The company does need to cultivate more sources. He's on board. But privately, Lissac can't help but worry about what will happen if that legal line gets crossed, when innocent research becomes insider trading. Because while Cohen might be a visionary, he's not infallible. Today proved it. And just like the stock market, what goes up often comes down.

From Wondering, this is Episode 1 of the FBI vs. the Hedge Fund from American Scandal. In our next episode, Stephen Cohen has to dodge trouble when a large stock trade goes awry and an FBI agent begins to suspect there's more to the success of SAC Capital than meets the eye. To listen to the rest of this season of American Scandal, start your free trial of Wondery Plus in the Wondery app, Apple Podcasts, or Spotify.

With Wondery Plus, you Wondery app, Apple Podcasts, or Spotify. With Wondery Plus, you can listen to other incredible history podcasts like American History Tellers, History Daily, Tides of History, and more. Download the Wondery app today. If you'd like to learn more about Stephen Cohen and SAC Capital, we recommend the book Black Edge by Sheila Kolhatkar. This episode contains reenactments and dramatized details. And while in most cases we can't know exactly what was said, all our dramatizations are based on historical research. American Scandal is hosted, edited, and executive produced by me,

Lindsey Graham, for Airship. Audio editing by Molly Bach. Sound design by Derek Behrens. Music by Lindsey Graham. This episode is written by George Ducker, edited by Christina Malsberger. Our senior producer is Gabe Ribbon. Executive producers are Stephanie Jens, Jenny Lauer-Beckman, and Marshall Louis for Wondery.