Pflaum had only a minimal understanding: Barai 302s; also, FBI interview notes with Jason Pflaum, hereafter Pflaum 302s.
“You should not ask”: Barai 302s.
Then, a minute later: “Fuuuuuck”: U.S. v. Barai, et al.
Kang took pictures of the entire exchange: Pflaum 302s.
10. OCCAM’S RAZOR
across the street from Carnegie Hall: Level Global address, 888 Seventh Avenue; Level Global Search and Seizure Warrant, November 21, 2010.
they had a search warrant: Warrant authorized them to search the offices of Ganek, his partner Anthony Chiasson, and two analysts, Sam Adondakis and Greg Brenner; Level Global Search Warrant.
That Saturday night: Ganek was scheduled to appear on a panel that weekend with SEC chair Mary Schapiro, a fellow graduate of Franklin & Marshall College; Peter Lattman, “In Insider Case, the Odd Couple Won’t Meet,” The New York Times, November 23, 2010.
making images of the firm’s servers: Level Global Search Warrant. See also David Ganek v. David Leibowitz, Reed Brodsky, David Makol, et al., No. 15 Civ. 1446, February 26, 2015.
he had worked out a deal: Katherine Burton, “Goldman Sachs Fund Buys Stake in Ganek’s $4 Billion Hedge Fund,” Bloomberg News, April 2, 2010.
had attempted to turn his life around: U.S. v. Noah Freeman, 11-Cr.-116 (JSR), Sentencing submission on behalf of Noah Freeman, filed January 28, 2015, letter from Silas Bauer.
blood doping with Epo: Freeman 302s.
“I understood that this involved”: Freeman 302s.
“Everything’s gone”: The exchange recounted in U.S. v. Samir Barai and Donald Longueuil, 11-Mag-332, February 7, 2011.
Sullivan was a former advisor: Tory Newmyer and Kate Ackley, “Sullivan’s Hiring Hedge Bets on Sully,” Roll Call, April 18, 2007.
Sullivan argued to the senator’s investigators: Some details in Jenny Strasburg and Michael Siconolfi, “Senator Probes Trades at SAC,” The Wall Street Journal, May 21, 2011.
On May 24, Grassley released another letter: Letter to the Honorable Mary Schapiro, Chairman, U.S. Securities and Exchange Commission, from Charles E. Grassley, Ranking Member, Committee on the Judiciary, May 24, 2011.
“you are only a grain of sand”: U.S. v. Mathew Martoma, No. 12 Cr. 0973 (PGG); cross-examination of Sidney Gilman.
a five-bedroom, $1.9 million house at the Royal Palm: The Martomas spent $1.9 million on the house, according to Florida real estate records.
Mathew and Rosemary Martoma Foundation: According to records, the foundation was incorporated in Florida with $1 million on December 10, 2010; according to its Form 990, the foundation donated a few hundred dollars in $50 or $100 increments to a handful of local charities in 2011 and charged more than $20,000 in expenses. There are no 990s filed for subsequent years.
“Your former business partner, Stephen Chan”: Bob Van Voris and Saijel Kishan, “SAC’s Martoma Harvard Expulsion Revealed as Trial Starts,” Bloomberg News, January 10, 2014.
Martoma fainted: This account, based on interviews with people directly familiar with what occurred, conflicts with a version that Rosemary Martoma provided to The New Yorker: Patrick Radden Keefe, “The Empire of Edge,” October 13, 2014. In that version, she said that when Kang and Callahan approached, Kang told her to “Get inside the house,” but she refused. She said that Kang then turned to Martoma and said, “Do you want to tell her or should I?” Martoma told Kang, “You can go ahead and tell her if you like.” According to Rosemary, Kang said to Martoma, “We know what you did at Harvard,” and Martoma then fainted. According to my reporting, Rosemary was not present when Martoma fainted during the encounter and did not hear what Kang said before Martoma passed out.
11. UNDEFEATABLE
he presented his son with a plaque: U.S. v. Mathew Martoma, No. 12 Cr. 0973 (PGG), GX 65, Mathew Martoma Sentencing Memo, filed May 28, 2014; letter from Bobby D. Martoma.
Martoma spent the year after graduation: U.S. v. Martoma, GX 106, Martoma Sentencing Memo, letter from Manju Varghese.
“He was ambitious”: Patrick Radden Keefe, “The Empire of Edge,” The New Yorker, October 13, 2014.
The clerk tried again, on February 4: U.S. v. Martoma, January 9, 2014, Disciplinary Hearing on Charges Against Ajai Mathew Thomas, Findings of Fact and Decision of the Administrative Board, May 12, 1999, filed as exhibit to Government’s Motion in Limine to Admit Evidence Concerning the Defendant’s Expulsion from Harvard Law School in Response to Potential Defenses.
Kane had expelled a Harvard Law student: Jal D. Mehta, “Law Student Expelled for Forging Transcript,” The Harvard Crimson, January 30, 1997.
The letters were all dated January 31: U.S. v. Martoma, Exhibit to Government’s Motion to Admit Harvard Evidence.
In its final report: U.S. v. Martoma, Exhibit to Government’s Motion to Admit Harvard Evidence, Disciplinary Hearing.
His father took out a second mortgage on their house: U.S. v. Martoma, Mathew Martoma’s Memorandum of Law in Support of His Motion to Exclude Evidence Concerning Events Unrelated to the Charged Offenses and Preceding Mr. Martoma’s Employment at SAC, filed under seal, January 9, 2014.
a talented young programmer named Stephen Chan: Ajai Mathew Thomas v. Stephen K. Chan, MICV-2000-0010, June 2, 1999, affidavit submitted by Mathew Martoma; some details of genesis of Computer Data Forensics.
It was signed by three “Case Analysts”: Computer Data Forensics report filed as an exhibit to Government’s Motion to Admit Harvard Evidence.
Martoma also took a polygraph test: Martoma Motion to Exclude Evidence.
He acknowledged that he had doctored his Harvard transcripts: Thomas v. Chan, affidavit of Stephen K. Chan, January 20, 2000.
their employees hung around the office: Bob Van Voris, “SAC Capital’s Martoma Defense May Be Hurt by Partnership,” Bloomberg News, January 28, 2014; also Thomas v. Chan, affidavit of Robert Owens.
“We were like rent-a-friends”: Van Voris, “SAC Capital’s Martoma Defense May Be Hurt by Partnership.”
The aggrieved employees collaborated on a letter: Thomas v. Chan, employee group letter, dated December 26, 1999.
Martoma filed for a restraining order against Chan: Thomas v. Chan, Interlocutory Order Continuing Restraining Order in Force.
bruises all over his body: Complaint filed in Thomas v. Chan.
Chan and six partners had been charged with fraud: U.S. v. Chan, et al., U.S. District Court, District of Massachusetts, Criminal No. 98-10277-GAO, August 12, 1998. The sham company allegedly entered into millions of dollars in leasing agreements for business purposes, to buy computer equipment and office supplies for a business that didn’t exist.
Chan pleaded guilty: Van Voris, “SAC Capital’s Martoma Defense May Be Hurt by Partnership.”
he had legally changed his name: Name change occurred on August 29, 2001, per the Clerk of the Circuit and County Court, Brevard County, Florida.
“We want Steve Cohen”: Some of the details of the FBI encounter come from Rosemary Martoma’s account in Keefe, “The Empire of Edge.”
some tangible victories to show for its investigation: Rajat Gupta, the former head of the McKinsey consulting firm and a former Goldman Sachs board member, had been arrested and charged with leaking information about Goldman to Rajaratnam. The Primary Global expert network had been shut down. Noah Freeman was still cooperating with prosecutors. Samir Barai had pleaded guilty and started cooperating. Donald Longueuil had pleaded guilty too and was sentenced to thirty months in prison: “Longueuil Pleads Guilty to Conspiracy, Securities Fraud,” Bloomberg News, April 28, 2011; Patricia Hurtado, “Ex-SAC Manager Longueuil Sentenced to 30 Months in Prison,” Bloomberg News, July 29, 2011.
why should he cooperate with the FBI?: Securities and Exchange Commission v. Jonathan Hollander, No. 11 Civ. 2885, Southern District of New York, April 28, 2011. In April 2011, Hollander settled with the SEC on civil charges that he had purchased 5,600 shares of Albertsons stock in his personal account bas
ed on inside information. He agreed to pay $192,000 in fines and was barred from the securities industry for three years.
Donald Longueuil, the former SAC trader: Hurtado, “Ex-SAC Manager Longueuil Sentenced to 30 Months in Prison.”
preparing to charge two traders at the hedge funds the FBI raided: Makol had two cooperators, Jesse Tortora and Sam Adondakis, former analysts at Diamondback and Level Global. On the basis of the information Makol was getting from them, the prosecutors were preparing to charge Todd Newman and Anthony Chiasson, Tortora and Adondakis’s bosses, with insider trading. Inside information about Dell’s earnings had allegedly passed from a Dell investor-relations employee to a former Dell employee to Tortora, and from Tortora to his boss, Todd Newman, and to Tortora’s friend Adondakis. Adondakis had in turn passed it to his boss, Anthony Chiasson, at Level Global. Both Newman and Chiasson had ties to SAC. See also Patricia Hurtado, “Newman Calls FBI Inside-Trading Agent as Last Witness,” Bloomberg News, December 11, 2012.
“I have a 2nd hand read from someone at the company”: U.S. v. Michael Steinberg, No. 12 Cr. 121 (RJS), GX 634, introduced during testimony of Jon Horvath. Full text of the email: “I have a 2nd hand read from someone at the company—this is 3rd quarter I have gotten this read from them and it has been very good in the last two quarters. They are saying GMs [gross margins] miss by 50-80 bps [basis points] due to poor mix, opex [operating expenses] in-line and a little revenue upside netting out to an EPS [earnings per share] miss. Even if they have some flexibility in the opex/other income to offset the light GMs and report in-line EPS or even a penny upside I think the stock goes down (I know they said the headcount reductions last quarter were backend loaded). Please keep to yourself as obviously not well known.”
It appeared that Steinberg had then turned around and made $1 million: U.S. v. Todd Newman, Anthony Chiasson, Jon Horvath, and Danny Kuo, No. 12 Mag. 0124, sealed complaint, January 17, 2012.
12. THE WHALE
Sid Gilman bent over the security table: Just two weeks earlier, on January 18, 2012, Todd Newman, from Diamondback, was arrested in Boston, and Jon Horvath was arrested in New York. Anthony Chiasson, David Ganek’s partner at Level Global, found out that his arrest was imminent and checked in to a hotel. Half a dozen FBI agents stormed his Upper East Side apartment building, only to find that he wasn’t home. He turned himself in later that morning. Preet Bharara announced charges against them, alleging that together they’d made $61.8 million in illegal profits trading on inside information in Dell and Nvidia, $53 million of which came from a single massive short of Dell stock by Chiasson at Level Global: Jenny Strasburg, Michael Rothfeld, and Susan Pulliam, “FBI Sweep Targets Big Funds,” The Wall Street Journal, January 19, 2012.
Gilman was appearing for his first meeting: U.S. v. Mathew Martoma, No. 12 Cr. 0973 (PGG), GX 741, dates of proffer meetings introduced during testimony of Dr. Sid Gilman.
“Mat Martoma will call me re SAEs in bap”: U.S. v. Martoma, GX 751.
SEC attorneys were openly discouraged: See Gretchen Morgenson, “SEC Settles with a Former Lawyer,” The New York Times, June 29, 2010.
He had just spent $20 million to buy a 4 percent stake in the New York Mets: Svea Herbst-Bayliss, “SAC’s Cohen Buys Small Stake in New York Mets,” Reuters, February 23, 2012.
assemble a bid for the Los Angeles Dodgers: Bill Shaikin, “Billionaire Aims to Own Dodgers,” Los Angeles Times, December 28, 2011. See also David Ng, “Dodger Suitor on Museum Board,” Los Angeles Times, January 14, 2012; Ronald Blum, “MLB Approves Dodgers’ Finalists,” Associated Press, March 27, 2012.
a $2 billion bid from Guggenheim Partners: Ronald Blum, “Dodgers Reach Deal with Magic Johnson Group,” Associated Press, March 28, 2012.
One of Guggenheim’s most significant investors was Michael Milken: Leslie Scism and Craig Karmin, “Guggenheim Gets SEC Scrutiny on Milken Ties,” The Wall Street Journal, February 27, 2013.
he was sorely disappointed: Steve Fishman, “The Taming of the Trading Monster,” New York, June 3, 2014.
a few minutes later, when Cohen pushed through the door: The date was May 3, 2012.
“ ‘I am just getting uncomfortable with the Elan position’ ”: In re: Elan Corporation, plc, SEC File No. NY-8152, U.S. v. Martoma, 12-Cr.-0973, government motion re Cohen SEC testimony.
13. KARMA
Martoma’s arrest was being covered by every major news organization: Michael Rothfeld, Chad Bray, and Susan Pulliam, “Trading Charges Reach SAC,” The Wall Street Journal, November 20, 2012.
The New York Times ran a story on the front page: Peter Lattman, “Insider Inquiry Inching Closer to a Billionaire,” The New York Times, November 20, 2012.
a high-concept sandwich shop: U.S. v. Mathew Martoma, No. 12 Cr. 0973 (PGG), testimony of Tim Jandovitz, January 10, 2014.
“Karma is a bitch”: U.S. v. Martoma, mentioned by Arlo Devlin-Brown during sidebar discussion.
Bharara had appeared on the cover of Time: Massimo Calabresi, “U.S. Attorney Preet Bharara Is Taking Down Wall Street,” Time, February 13, 2012.
In total, it would be one of the largest settlements the SEC had ever extracted: Details on CR Intrinsic/Elan settlement: “CR Intrinsic Agrees to Pay More than $600 Million in Largest-Ever Settlement for Insider Trading Case,” SEC press release, March 15, 2013. Details on Sigma/Dell settlement: “SEC Charges Hedge Fund Firm Sigma Capital with Insider Trading,” SEC press release, March 15, 2013.
Anthony Chiasson and Todd Newman: The case was so convoluted—with the two portfolio managers having been the fifth people on a chain of emails about Dell’s earnings—that it looked shaky. Defense lawyers thought that the government was testing the limits of what criminal insider trading could be. Chiasson and Newman professed not to know where the Dell information had come from and fought the case vigorously. Despite the complexities of the case and the sometimes-bewildering evidence, though, a jury convicted them after two days. Jon Horvath had flipped and started cooperating six weeks before he was set to go on trial with them. Patricia Hurtado, “Ex-SAC Analyst Horvath Pleads Guilty in U.S. Insider Case,” Bloomberg News, September 28, 2012. Chiasson and Newman’s convictions were overturned on appeal in December 2014.
The SEC hypothesized a likely scenario: It should be noted that Plotkin and Vaccarino were never charged with any wrongdoing.
He attended the World Economic Forum in Davos: Katherine Burton, “Cohen Travels to Davos for Lesson in ‘Resilient Dynamism,’ ” Bloomberg News, January 23, 2013.
In 2005, he’d made several significant purchases: Carol Vogel and Peter Lattman, “$616 Million Poorer, Hedge Fund Owner Still Buys Art,” The New York Times, March 26, 2013.
“the width of a pencil tip”: Kelly Magee, “Wynn’s $troke of Luck,” New York Post, October 15, 2008.
“This is a painting that has haunted Steve”: Peter Lattman and Carol Vogel, “Suit by Ex-Wife of SAC’s Cohen Revived on Appeal,” The New York Times, April 3, 2013.
“When you stand in front of it, you’re blown away”: Lattman and Vogel, “Suit by Ex-Wife of SAC’s Cohen Revived on Appeal.”
When news of the purchase, for $155 million, appeared: It turned out that Cohen might have actually purchased Le Rêve several months before, in early November of 2012, just three weeks before Martoma was arrested. His advisors tried to undo the effects of the news coming out when it did: “The timing was bad,” Heller said, referring to the press reports about the Picasso purchase and clarifying that the price Cohen had paid was actually $150 million. “We’re correcting the chronology.” Lattman and Vogel, “Suit by Ex-Wife of SAC’s Cohen Revived on Appeal.”
14. THE LIFE RAFT
Berke thrived on situations like this: Berke’s statement after Steinberg’s arrest: “Michael Steinberg did absolutely nothing wrong. At all times, his trading decisions were based on detailed analysis as well as information that he understood had been properly obtained through the types of channels that institutional investors
rely upon on a daily basis.”
it was much safer to file cases that were close to a sure thing: For more on the subject of the chilling effect losses had on the Justice Department, see Jesse Eisinger, “Why Only One Top Banker Went to Jail for the Financial Crisis,” ProPublica and The New York Times Magazine, April 30, 2014.
In 1988 Michael Milken’s lawyers: James B. Stewart, Den of Thieves (Simon & Schuster, 1991), p. 441.
Klotz then revisited some of the facts: See In the Matter of Steven A. Cohen, Administrative Proceeding File No. 3-15382, order filed July 19, 2013.
that crime could be attributed to the company he worked for: “9-28.000—Principles of Federal Prosecution of Business Organizations,” U.S. Attorney’s Manual, “Title 9: Criminal.”
Klotz called the head of the securities unit: Ben Protess and Peter Lattman, “Cohen Declines to Testify in SAC Insider Case,” The New York Times, June 28, 2013.
Since the beginning of the year, almost $2 billion had been redeemed: Peter Lattman and Ben Protess, “SAC Starts to Balk over Insider Trading Inquiry,” The New York Times, May 17, 2013.
Executives at the firm had been watching as the investigation developed: Matthew Goldstein, “Blackstone Notifies Cohen’s SAC It Intends to Pull Money,” Reuters, May 25, 2013.
He felt that the Obama administration: Jonathan Alter, “Schwarzman: ‘It’s a War’ Between Obama, Wall St.,” Newsweek, August 15, 2010.
he didn’t want to abandon Cohen: Peter Lattman, “Blackstone Keeps Most of Its Money with SAC,” The New York Times, February 14, 2013.
SAC’s own compliance department had sanctioned someone: U.S. v. SAC Capital Advisors, et al., No. 13 Cr. 541 (LTS), Sealed Indictment, July 25, 2013.
“Today we announced three law enforcement actions relating to the SAC group of hedge funds”: Preet Bharara press conference, July 25, 2013.
Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street Page 37
