Inside Billionaire Steve Cohen’s Comeback
In 2013, an insider-trading scandal brought down his hugely successful hedge fund. In his first interview about the firm since then, Cohen tells Fortune how he’s rebuilding for redemption.
On the night of Jan. 8, 2016, Steven A. Cohen walked into a steak house just east of Times Square. It was Friday, and the stock market had just closed out a brutally bloody first week of the year. But no matter: This was Exoneration Day, according to Cohen’s friend and former investor Anthony Scaramucci, and they were celebrating.
That afternoon, Cohen had won the battle of his career. Just 26 months after his astoundingly successful hedge fund pleaded guilty in the biggest insider-trading scandal in history, paid a record $1.8 billion fine, and effectively shut down, Cohen had gotten the word: His path was clear for a comeback.
Seated at the corner table at Hunt & Fish Club, where Scaramucci is an owner, for a moment they were just two boys from Long Island again, out in the city for the night with their wives. As they popped champagne and ordered red wine, the conversation turned to perseverance and friendship. That’s when Scaramucci, founder of SkyBridge Capital, one of the largest funds of hedge funds, pressed his billionaire buddy about his next step: “Are you going to come back and run money?”
Cohen, whose personal net worth is around $13 billion, demurred. “I’ve got to think about it,” he said. “I don’t really need to.” Scaramucci wasn’t buying it. “My money is on you reopening,” he wagered. That, Scaramucci explains later, would be true vindication for a man who has a way of winning when he wants to. “You want to short Steve Cohen?” Scaramucci says. “You’re going to get your face ripped off.”
The fact that Cohen can even consider returning to the hedge fund business is a startling victory. Eight people were convicted of having committed insider trading while they worked for him at SAC Capital (though two of those convictions were later overturned), and in July 2013, the Securities and Exchange Commission charged Cohen with failing to supervise them. Damned by the accusations, Cohen retreated as his clients withdrew their money. Though Cohen was never charged criminally, many assumed that his days as a hedge fund manager were over. He had delivered astonishing annual returns of 29% over nearly 21 years running SAC, managing $16 billion at his peak. The government’s investigation tainted those achievements and threatened to ban him from the industry for life.
But in January, the SEC suddenly settled with Cohen, who neither admitted nor denied wrongdoing. The settlement barred him from managing outside investors’ money, but only until 2018—and it didn’t keep him from playing the market with his own money, or preparing for a day when he might have customers again. As confident as they were that Cohen had to have known that his traders were getting inside information by crooked means, the government could never amass enough evidence to prove it. Out for blood, the SEC settled for a fingernail. “Everybody was fairly shocked,” says a former SEC attorney. “It does seem like Steve Cohen beat the SEC.”
Today Cohen is reveling in his survival and staging his next chapter. He turned 60 in June, but he’s been celebrating his birthday all year, taking friends on multiple weekend golfing trips. He hasn’t said yet whether he’ll manage outside money again, but almost everyone who has ever worked or invested with him is sure he will. In one clear sign that Cohen feels secure in his salvation, he agreed to an interview with Fortune—only the third time that the publicity-shy trader has spoken with the press about his work, and the first since SAC was charged with insider trading. At breakfast at his Westchester country club on a high-foliage fall Saturday in early October, he’s wearing what he almost always wears: a half-zip blue sweater with a blue-and-white striped button-down peeking out. “You know something,” says Cohen. “I feel I’m a very blessed person, a very happy guy, and when I look at my career in totality, I wouldn’t trade it for anything in the world.”
“Everybody was fairly shocked,” by the January settlement, says one attorney. “It does seem like Steve Cohen beat the SEC.”
Graze the memory of 2013, though, and Cohen’s merry expression morphs to stone. It’s a period he doesn’t like to talk about, a year that in recollection remains dark, painful, and full of shame, one that his friends and associates think he would do better to forget. To truly redeem himself, he’ll have to demonstrate unwavering adherence to the law—and show that he can still post industry-topping returns while under that microscope. That’s the only way people will believe that he earned his billions honestly and trust him with their money again. “I think he wants to correct the record,” says a former portfolio manager at SAC. While many of his associates believe that theory, Cohen rejects it. “I’m not trying to prove anything, okay?” he says, his face grave as a cement slab. “I just don’t want to ever go through, nor do I want my employees to go through, what we went through a few years ago.” That’s all he’ll say on the topic—in an interview during which Cohen, though cordial, is flanked by his general counsel and two in-house flacks.
Before he can reenter the hedge fund world, Cohen will need government approval, and plenty of his onetime accusers and critics aren’t prepared to see him succeed. “He wants to win,” says a former federal prosecutor who worked on the government’s insider-trading crackdown. “How can he win now? By proving to the world … that maybe there never was a cheater.”
For Cohen, the reality of being under investigation began to sink in on the cool morning of May 3, 2012, when he was called to testify before the SEC in downtown Manhattan. In records of the daylong exchange, the mutual disdain is palpable. His lawyers insistently object (even though their objections don’t apply in such proceedings); in the 18 pages of the transcript made public, Cohen says some version of “I don’t remember” or “I can’t recall” no less than 95 times. It’s clear he’d rather be working.
By that point, SAC had been soundly thrashing the broader market and other hedge funds for years, becoming famous for rapid-fire trading of massive amounts of stock and for having dibs on useful information. But the government had heard enough about Cohen’s reputation to believe that some of his supposed “edge” was obtained illicitly. Their tip lines rang with complaints from rival managers. On Wall Street, brokers told of having to kowtow to Cohen and ply him with intel; if they snubbed him, he would put them in the “penalty box”—refusing to trade with them or let his friends trade with them for a month or more, depriving them of commissions. “Cohen bullied the Street to the point that everyone wanted to see him go down,” says Brad Balter, CEO of Balter Liquid Alternatives, which invests in hedge funds.
From the confines of SAC’s Stamford, Conn., offices rumors also emanated of the boss’s brutally caustic management style. Cohen tolerated and rewarded more risk than rival managers, but the consequences of failure—in some cases immediate dismissal—made the air on the trading floor heavy with pressure. There were more than 100 ultracompetitive portfolio managers at SAC, all reporting to one manager. It wasn’t hard to imagine that traders could go rogue.
By July 25, 2013, Preet Bharara thought Cohen’s reckoning day had come. Bharara, the U.S. Attorney for the Southern District of New York, held a press conference that day to announce its indictment of SAC, the only time an entire hedge fund has been charged with insider trading. The allegations against SAC’s employees included a 2008 trade that yielded a $275 million profit, based on an illegal tip from a doctor with nonpublic information about an Alzheimer’s drug trial. It remains the largest insider-trading profit in history.
Particularly suspicious in prosecutors’ minds was a 20-minute phone call between Cohen and a portfolio manager named Mathew Martoma, currently in prison for trading on that tip. The next morning, Cohen ordered the trade. Prosecutors harbor a hunch that Martoma had told Cohen the source of his information over the phone. Still, without Cohen or Martoma confessing as much, the government could never corroborate that theory. After 10 years of investigation, prosecutors didn’t have enough evidence to charge Cohen with a crime, so they went after his business instead. “SAC became over time a veritable magnet for market cheaters,” Bharara said at his press conference.
Inside SAC, Bharara’s words cracked like thunder. “It was surreal,” recalls Rachel D’Antonio, a former SAC executive who’s now treasurer at Cohen’s firm. A portfolio manager was stunned when fellow parents at the school drop-off prohibited their children from talking to the kids of someone who worked at “that bad company.” Employees were greeted at kids’ baseball games as though they had been through a Bernie Madoff–style collapse. Portfolio managers demanded to know if they could expect to be paid; Cohen responded by upping bonuses for those who stayed. “It was a very difficult time to go through,” says Sol Kumin, who left SAC to start the hedge fund Folger Hill in early 2014.
SAC’s last Christmas party, in 2013, was a somber affair. It was held in the lobby of the Stamford headquarters; there wasn’t even top-shelf Scotch. A few weeks earlier SAC had pleaded guilty to the trading charges and agreed to shutter its hedge funds, and now employees weren’t sure what firm they worked for. Still, some remember that party as a turning point, the night when Cohen crystalized his resolve. Cohen took a microphone and proposed a toast, vowing, “We’re going to be the only company that survives a criminal charge from the government.”
Fast-forward three years, and Cohen has more than delivered on his promise. In 2014, as SAC wound down, he converted his operation to a “family office” under the name Point72—operating out of SAC’s former headquarters. With 1,100 employees and 100 portfolio managers from New York to Tokyo, the firm now expects to reach SAC’s peak headcount by the end of 2016. It manages $11 billion, all of it either Cohen’s or his employees’. In the meantime, federal court rulings have raised the burden of proof for insider trading. That lifted some of the stain from Cohen’s legacy and helped make his SEC settlement possible. In March, Cohen set up a hedge fund next door to Point72 called Stamford Harbor Capital, of which he owns 25%, though it won’t manage anyone else’s money until at least 2018.
Point72’s executive team is almost entirely new, including its president, Doug Haynes, a longtime McKinsey executive who did a stint in the CIA. When Matthew Granade interviewed with Cohen after being called in by a recruiter, his first question was “[SAC] kind of got screwed up—what was your mistake?” Cohen didn’t hesitate. “The biggest lesson I learned was, trust but verify,” he told Granade, who is now Point72’s chief market intelligence officer. “And I didn’t do enough verifying.”
At breakfast, Cohen doesn’t admit to any mistakes. He seems agnostic about whether Point72 ever manages anybody else’s money but his. “I just want it to be a great asset management firm, where people can come and accomplish the things they want to accomplish in their career,” he says. As for 2018, he says, “We’ll figure it out when we get there.” He has the nonchalance of a traveler who doesn’t bother to reserve a hotel in advance.
Cohen’s burst of activity has rankled financial watchdogs who feel Cohen is thumbing his nose at them. Democratic Sen. Elizabeth Warren (Mass.) upbraided regulators for allowing “a recidivist hedge fund manager” to “make a mockery of the SEC’s core mission.” And the dismay spans both sides of the political aisle. Letting Cohen associate with Stamford Harbor while banned from hedge funds, Republican Sen. Chuck Grassley of Iowa tells Fortune, “raise[s] questions about whether the SEC is as tough on enforcement as it should be.”
Cohen’s refusal to ramp down his lifestyle during his exile also struck critics as a poke in the eye. Even with an art collection worth an estimated $1 billion, he never stopped avidly buying—“purely from the gut,” he says.
“A lesser guy would have just gone out to pasture and said, ‘Look, I’ll pick up my chips. I got plenty of money. I don’t need this,’ ” says Larry Gagosian, Cohen’s longtime art dealer and friend. “But he wants to show that he’s still got it.”
At home in Connecticut, Cohen is just “Steve” to most people. A native of Great Neck, Long Island, he still frequents local hot dog shops and pizza parlors with high school buddies. Sure, he lives in a Greenwich mansion filled with paintings by Picasso and Jasper Johns, has homes in the Hamptons and Los Angeles, and owns a stake in the Mets, but says Cohen, “I’m pretty much the same guy.” His wife, Alex, likes to tell decorators, “We’re butts-in-seats kind of people.” The two met through a dating service and have seven children, including three from previous marriages. For a while, their daughter’s pet pig, Romeo, roamed the house among the Picassos, occasionally nibbling their feet under the dinner table. (When Romeo reached 150 pounds, he retired to a farm.) Every Thursday, Cohen has a standing dinner date with Alex; colleagues report that the only time they’ve seen him in a suit is on their anniversary.
The couple have also recently initiated a flurry of philanthropy; while it would be easy to dismiss the push as a whitewash effort, the causes Cohen supports have personal significance. His $325 million initiative for veterans’ mental-health care and research into post-traumatic stress disorder was inspired by his son Robert’s time as a U.S. Marine in Afghanistan. The couple’s foundation also contributed $40 million toward finding a cure for Lyme disease, which Alex has suffered from for the past seven years.
Not that Cohen’s charitable efforts interfere with his trading regimen. At his inaugural Cohen Cares Summit for veterans in Washington, D.C., in September, Cohen gave a brief speech at 8:15 a.m. But by 9 a.m. he was gone, withdrawing to a suite down the hall to trade when the market opened. Some six hours later he was still there, with his two bodyguards sprawled in chairs outside the closed door, three empty cans of Red Bull between them, looking bored.
Everywhere he goes, Cohen brings his five-screen trading apparatus, the way Arnold Schwarzenegger used to travel with a portable gym. The screens go with him even on vacation. On his week off in the Mediterranean, he heads below deck on his boat when the markets open in New York, to trade until dinnertime. “That’s how I know he couldn’t have done anything wrong,” says Tom DeMark, CEO of DeMark Analytics. “He’s obsessed. He’s got no life. He’s got the markets at heart.”
To believe fully in Cohen’s innocence, you have to believe that he’s just that good at what he does. DeMark can vouch for that: He talks to Cohen a couple of times a day and has a special phone that only Cohen can call, like Commissioner Gordon’s line to Batman. DeMark advises Cohen on market timing, a trading technique that most other investors find patently impossible. Cohen has a knack for synthesizing data points—from investor sentiment to macroeconomic indicators to the word choice of a Fed official—to anticipate how the market will react and when to pull the trigger. He no longer manages the biggest portfolio at his firm, but he still generates as much as 5% of its profits, down from 15% a decade ago, as he spends more time mentoring his minions. “He learns from mistakes and never makes the same mistake twice,” says Phil Villhauer, head of global trading for Point72, who has worked for Cohen for 15 years. And last year Point72 reportedly earned returns of 16%, while the S&P 500 was flat.
“So the question is, What the hell is he doing this for?” asks SkyBridge Capital’s Scaramucci. Cohen’s answer hasn’t changed even as he has piled more figures onto his net worth; trading is core to his identity. Without it, who would Steve Cohen even be? “This is what I do. This is my platform. This gives me the opportunity to meet incredible people,” Cohen says. “I’m not going anywhere.”
Ask Cohen about retirement and he brings up his father, Jack, who operated a garment factory in the Bronx. Jack retired young, and it pained Steve to watch as his dad appeared to squander some still-vital years with little activity or purpose. “I can’t imagine myself retiring the way he did—not that I’m ever going to retire,” says Cohen. In March 2014, Jack, by then a widower, died at 93. There’s a portrait of Jack on Cohen’s wall at home that he passes on his way to work every day. “And I always say, ‘Good morning, Dad.’ ”
A few weeks after Cohen buried his father, Point72 was born. Running a family office instead of a hedge fund has made life easier for Cohen. Regulatory reporting duties went poof! along with the investor-relations department. The firm was Cohen’s clubhouse again—and he wanted to tear it down and start over. On a mission to produce the highest returns, he would not only have to evolve to stay ahead of competitors, but have to do so with the squeaky-cleanest standards—and a government-mandated monitor camped down the hall.
For the first time, Cohen hired former feds, including Vinny Tortorella, a former prosecutor, as chief compliance and surveillance officer, and Kevin O’Connor, once the U.S. Attorney for Connecticut, as general counsel. Cohen gave Tortorella veto power over all hires, as well as discretion to fire (which he’s done more than once). Cohen poured $100 million into Tortorella’s department, including buying spy software from Palantir—making Point72 the first asset management firm to use the technology for compliance. With machine-learning software, Point72 screens employees’ emails for red-flag words and phrases, kept secret so traders can’t game the system.
Point72 has also tried to lighten the pressure that might push traders to bend the law. Gone is the practice from the SAC days of “tagging” trades, by which portfolio managers would receive extra bonuses if Cohen used their ideas to make money in his “big book” account. Gone too is the “down and out” clause that served as an ejector seat for traders who lost too much money. Regulators would never admit to watching Steven Cohen any more closely than they would others, but Point72 fully expects them to. “It would be crazy to get too close to the line,” says Eugene Ingoglia, a Morvillo attorney and former prosecutor who helped put Martoma in prison. “You don’t want to put your head in the lion’s mouth, even if you think you’re real fast.”
Big data, meanwhile, is helping Point72 hit two birds—performance and compliance—with one stone. Cohen has been making pilgrimages to Silicon Valley, talking to startups that generate data that Point72 might use: “I’m like a kid in a candy store,” he says. The firm is already experimenting with credit card data from fast-food restaurants and satellite images to predict corporate earnings and more. A bonus? Nobody can argue that a camera in space illegally disclosed materially nonpublic information. “If you can show that your company relied on these data sets, then you can show you’re in the clear,” says Gene Ekster, a big-data consultant to hedge funds who once worked at SAC.
The consensus outside Cohen’s offices is that the firm’s hiring spree and technological expansion are all part of a plan to reopen to outside investors as soon as the sun rises on Jan. 1, 2018. For Cohen to say so out loud, though, could jeopardize the privilege entirely: If the SEC gets even a whiff that he’s starting up early, the whole deal could be yanked off the table. That hasn’t stopped potential investors from asking, “When?” To open at the beginning of 2018, Stamford Harbor could start the fundraising process as soon as May 2017. Investors endured long waiting lists to get their money into SAC Capital; for Stamford Harbor, many are ready to get in line right now. “There will be a sucking sound of money leaving other hedge funds and going in” to Cohen’s, adds Brad Alford, founder of Alpha Capital Management, which invested with SAC.
Still, some former investors are wary of going back to Cohen. “There are enough folks out there who are just too afraid of getting involved again, and we may be one of them,” says one former SAC investor. There’s also the question of costs. SAC used to charge some of the highest fees in the industry—3% of assets plus 50% of all profits. Stamford Harbor may charge just as much, according to people who have reviewed its preliminary filings. “The fee is high by today’s standards and high by yesteryear’s standards,” says Jacob Walthour Jr. of Blueprint Capital Advisors. Pensions and other institutions may balk if they were expecting a guilty-plea discount. Besides, the former investor says, “the real question is, Can they still deliver the returns?”
To Cohen, the insinuation is an affront. “If I’m going to be mediocre—if I’m going to be mediocre,” he says, his voice rising in pitch, “I’m going to question whether I should stay in this business.”
That said, business isn’t as stressful as it used to be. Cohen makes sure to get his “beauty sleep,” he says; the night of the Brexit vote in June he was in bed by 10:30, hours before votes were counted. “Fifteen years ago, I probably would have stayed up all night watching it,” he reflects. “Now … I’m tenacious in other ways.” (He has managed to see one or two episodes of Showtime’s series Billions, which is said to be based on Cohen’s battle with Bharara. “Hollywood,” he says.) Remember the stock market correction of August 2015? Cohen golfed right through it. Committed to a two-day tournament, he wasn’t even allowed to check his cell phone. “Ridiculous!” he recalls. But then he shrugs. “You say, ‘All right, I’m going to lose some money today. That’s the way it goes.’ ”
When I last see Cohen, he’s slapping on a royal-blue baseball cap and riding away in a golf cart, off to hit some balls before his daughter’s field hockey game. Luckily, the market is closed.
A version of this article appears in the November 1, 2016 issue of Fortune with the headline “Steve Cohen Has Nothing to Prove (but He’s Going to Prove It Anyway).”