Black Edge

by Sheelah Kolhatkar

  Still, Steve was doted upon. His grandmother marked him as the brightest of the eight siblings and referred to him as the “sharpest pencil in the box,” which made him glow with pride. He got good grades without spending a lot of time studying. Cohen’s older brother Gary remembers their mother fixing steak for Steve while the rest of the kids got hot dogs. “I used to complain,” he recalled, “and my mother said, ‘Your brother Steve is going to support us someday.’ ”

  In high school, Cohen discovered the one extracurricular activity that ignited true passion in him: poker. “A group of us, we started playing cards at each other’s houses, all day, then all night,” Cohen remembered. “The stakes started at, like, a quarter, fifty cents. Eventually we got up to five, ten, or twenty bucks a replacement card, and by tenth grade you could win or lose a thousand dollars in a night.”

  All this card-playing helped Cohen learn an important lesson about capitalism. There were relatively difficult ways to make money, like working as a stock boy at Bohack supermarket for $1.85 an hour, which he did one summer and found to be excruciating. And there were much easier ways to earn a buck, like beating his friends at the poker table, which he found to be quite enjoyable. Cohen would stumble home early in the morning with bundles of cash, making sure to return his dad’s car keys in time for his father to make his morning commute to work. Watching his father trudge off to work each day, Cohen had one thought: This life is not for me.

  —

  Cohen was admitted to Wharton, and his parents were overjoyed. They had inherited some money from Jack’s parents, freeing them from the burden of student loans, although Steve would still have to work to earn money for books and going out. As soon as he arrived on campus, he noticed that the parking lot was filled with BMWs and Mercedes that belonged to his fellow students. Once again, Cohen was in an environment where most everyone around him came from wealthier families than he did and he was shut out of the most elite social circles. His fraternity house became the center of his life.

  The culture at Wharton was driven by the worship of money. Cohen’s fraternity, Zeta Beta Tau, or ZBT, was the wealthier of the two Jewish fraternities on campus. Its nickname was “Zillions Billions Trillions.” Cohen spent most of his nights in ZBT’s living room, which was transformed into a gambling den, with a dozen guys around a table. At the center of the table sat Cohen, leading the game, intensely focused amid clouds of smoke and clinking beer bottles. He was part of a core of five or six young men who dominated the table, while a rotating cast of losers filled the extra seats.

  One night in 1976, a student from one of his classes sat across from him, sweat accumulating at the base of his back. Cohen cracked jokes and flashed his gap-toothed smile. He had become known as a snake charmer who specialized in separating his classmates from their inheritances. He wasn’t cool and didn’t have women paying attention to him, but he had earned the respect of the trust fund kids he was in school with. The stakes in the game were already into the hundreds of dollars, which Cohen’s opponent, an occasional player, found to be a little rich for a game full of college students. Cohen’s classmate swallowed hard and braced himself for another loss. Cohen won several thousand dollars from him over the course of the semester, and each time he lost, the classmate swore he wouldn’t let it happen again.

  While many of the fraternity brothers stayed up late dropping acid or drinking beer, Cohen rose early each morning to read The Wall Street Journal. He carefully tracked the stock market, but he considered school itself to be a waste of time. One day, during a statistics exam, while the others in the class were struggling to finish, Cohen stood up and marched out the door before he was done to check his closing stock prices. He thought he had no chance of competing with the prep school kids who spoke the same language and had all read the same books. He would have to outsmart them.

  In between classes, Cohen roamed around the floor of the Philadelphia-Baltimore-Washington stock exchange in a T-shirt, walking up to the traders and annoying them by saying things like: “Hey, your spreads are off.” He started skipping classes to visit the Merrill Lynch offices in Philadelphia, where he could watch the NYSE ticker. “I’d just stand there and stare,” he said. “I could hear the tick tick tick of the tape, and you would watch a stock go by at, say, 50…50…50…And then it might go up or down a tick. You could see the trade happening. You could just watch it happen in slow motion. And later, not right away, I found I was pretty good at guessing which way those numbers would go.”

  All around him, Cohen saw people who weren’t as talented as he was succeeding. That tick tick tick of the tape became the key to the future he felt he deserved.

  —

  Elaine’s was a smoky, oak-paneled restaurant that attracted artists and theater people on the Upper East Side, and Cohen was at the bar, sipping a drink. He was alone, on his birthday. He didn’t have many friends. Rain was pouring down on the street outside.

  It was June of 1979, and Cohen was exhausted from a day on the floor at Gruntal, where all day long people had been screaming “Stevie!” at him. The nickname made his skin crawl. Aizer had adopted “Stevie” as a way to distinguish Steve Cohen from Steve Ginsberg, the older brother of Kenny Ginsberg, Cohen’s best friend from high school, who had recently started working with them. Aizer’s little operation was becoming an important profit center at Gruntal, and they were given a lot of freedom by Howard Silverman, Gruntal’s CEO, who adored Cohen. Silverman drove sports cars, spoke with arrogance and ambition, and liked people who shared his values. He could see that Cohen was hungry, and he wanted guys like him around.

  Over the previous year, Cohen had started making more and more money trading at Gruntal, but he was still socially unhappy, permanently disappointed over the lack of recognition he felt he received. He didn’t have many friends. Elaine’s was crowded and Cohen looked around, contemplating the fact that he was now twenty-three years old and single, when someone caught his attention.

  A woman had just walked in, dripping wet, in a white camisole and a silk skirt that clung to her legs. Cohen stared at her.

  The woman looked around anxiously and smoothed her wet hair. She was supposed to meet a girlfriend for dinner. It was the sort of Manhattan rainstorm that made it impossible to find a cab, so her friend was late. She hovered by the bar and watched the door, keeping her eyes cast low to avoid the gazes of the men who were staring from different parts of the restaurant, a New York City survival tactic that came naturally to her. At one point, she noticed Cohen looking in her direction and angled herself so that she was facing the other way. Cohen watched her for a few minutes before he felt bold enough to approach her.

  “Hello,” he said, sidling up awkwardly. He tried to smile.

  “Hello,” she said, and looked at him quizzically. Who is this guy? she thought to herself.

  Her name was Patricia Finke. She would never normally have bothered with someone like Cohen, who was so conservative, so corporate-looking. She had grown up in an artsy family in Manhattan and had been raised with a snobbish attitude toward the suburbs. Under different circumstances she would have completely ignored him. But he appeared harmless enough in his wrinkled shirt and unstylish shoes, and he seemed captivated by her. He gave off an aura of vulnerability that was appealing.

  At first, Cohen tried to impress Patricia with stories about how he’d gambled all his bar mitzvah money in the stock market as a kid and how his bosses at Gruntal were upset about how much risk he took with his trades and how everyone at work thought he was too cocky. “They think I’m a cowboy,” he said. For a while, Patricia kept looking over his shoulder, watching for her friend. But eventually, against her better instincts, she was drawn in. She and Cohen ended up talking for hours.

  Before he left that night, Cohen convinced Patricia to give him her phone number. He spent the next few weeks pursuing her, calling three times a day, asking to know when they’d see each other again.

  They dated for the next several
months. Some of Patricia’s friends couldn’t understand what she was doing with Cohen, who seemed so unsophisticated, a money-obsessed schlub from Long Island. But Patricia had grown up without money, and she hadn’t finished high school. She knew what it was like to worry about paying for all her expenses. She was supporting herself working for a publishing company and had a rent-controlled apartment in the West Village. She wasn’t unhappy, but there was no denying that Cohen’s drive for riches was attractive. She didn’t have a clue about the stock market, but he talked about it endlessly, boasting about how much money he planned to make. He said that he would take care of her.

  Cohen, for his part, had little else going on in his life. He lived in a one-bedroom apartment where most of the lightbulbs were burned out. He spent a lot of his free time by himself. He wanted a wife. He cared about Patricia, and he started suggesting they get married. Patricia finally agreed.

  They told their parents that they had eloped. But in fact there was a tiny wedding, with just two guests, Patricia’s maid of honor and Cohen’s best man, at a small Unitarian church in Murray Hill, a quiet neighborhood in the middle of Manhattan. Not long after, in 1981, their first child, Jessica Lynn, was born. Finally, Cohen had his own family.

  —

  “Pick up the fucking phone!” Ron Aizer yelled.

  It was a typical morning on Gruntal’s trading desk, with Aizer’s traders tapping on their keyboards. Usually, when a phone rang, everyone would wait to see who would be the first one to get too annoyed to ignore it and pick it up.

  One of the assistant traders, who was trying to fill in trade tickets that were spread all over his desk, looked around, but there was no free phone within reach. “I don’t have a phone!” he yelled.

  The phone kept ringing.

  Cohen, who was trying to make a trade, yanked his own phone right out of the wall and slammed it on the assistant trader’s desk. “You want a phone? Here’s a fucking phone!” Within seconds, they were both on their feet, inches apart.

  “You motherfucker, what do you think you’re doing?”

  “You fucking piece of shit!”

  A few minutes later, everybody was friends again.

  It went like that every day. It was Aizer’s job to manage the tension and keep his traders productive and busy. He divided the stocks of the Dow Jones index among them, usually reserving the biggest ones with the most volatility, such as IBM and Eastman Kodak and Honeywell, for himself. If no one appeared to be trading a particular security regularly, any one of the traders could gradually take it over until it became theirs. Most of the time, everyone respected these allocations. Everyone except Cohen.

  One day, a trader came to Aizer to complain about Mesa Petroleum, one of his stocks. Mesa was a volatile company, with dramatic swings that created ample opportunities to make money, which meant that everyone else wanted to trade it, too. “Every time I try to trade, Steve’s ahead of me,” the trader complained. “Mesa’s my best stock, and he’s killing me!”

  Aizer confronted Cohen. “Steve, you’re making so much money, and these guys are not doing as well,” he said. “Do you really need to trade Mesa?”

  “Would the Yankees ask Mickey Mantle to bat eighth?” Cohen shot back. Aizer shrugged. It was hard to argue. Cohen was such a good producer that he became the exception to every rule.

  Aizer had negotiated to keep 50 percent of the trading profits his team made, which added up to millions of dollars a month. They moved into a larger office adjacent to Gruntal’s trading floor to accommodate all the new traders being hired. Many of them came from Drexel Burnham Lambert, where Michael Milken worked, which had developed a reputation for training aggressive traders. Even in the bigger space, though, there was a disproportionate number of men with volcanic tempers squished together so tightly that they were practically on top of one another.

  Cohen and the rest of Aizer’s employees couldn’t have chosen a more opportune moment to begin a career in finance. Ronald Reagan’s pro-business policies had strapped a jet pack on Wall Street and the traders and raiders who filled its ranks. Regulations were loosened, freeing companies to borrow money and buy their competitors, and the stock market began one of the most prolonged upward swings in its history. The pace of mergers and acquisitions increased, fueled in part by Milken’s empire at Drexel Burnham Lambert, which had created a new way of financing corporate takeovers through high-yield debt, also known as junk bonds—which were ranked “below investment grade” by ratings agencies because they were riskier than other bonds. With these new instruments, companies that couldn’t borrow money could suddenly issue junk bonds, which gave them the financial resources to launch hostile takeovers of their competitors. Every day, rumors of these leveraged buyouts sent companies’ share prices soaring, earning millions for the traders buying and selling their stocks.

  It didn’t take long for Cohen to become emboldened by his success. He started day-trading stocks and built positions around events such as takeovers and initial public offerings, applying his instinct for the market to the industry shifts taking place. “He was the best trader I’d ever seen—just exceptionally better than anyone else,” Aizer’s clerk Helen Clarke said. “He had an ability to hold on to a position, without flexing. Sometimes you can be in a position, and someone slips on a banana peel in Pakistan, and suddenly everything changes. He never got out of a position because he was nervous.”

  It wasn’t so much that Cohen was smarter than other traders, but he had conviction in his instincts and he acted quickly. “He had a natural talent,” recalled Silverman, Gruntal’s CEO, describing Cohen’s skill as a “tape reader,” someone who had an intuitive feel for supply and demand in the market gained from watching the physical ticker tape, which showed trades that had just been completed. “He really was brilliant.”

  Cohen became a star at Gruntal, someone who couldn’t get himself fired no matter how many risk limits he violated or how many tantrums he threw while violating them. Cohen knew that he was right about where a particular stock price was going more often than not. He abandoned Aizer’s riskless options strategy and stopped hedging his positions, making them both riskier and, usually, much more profitable.

  Soon, Cohen was making $5 to $10 million a year. Oddly, though, while the money fueled his confidence on the trading floor, it did little for his private life. He would come home from work in an irritable state, and he and Patricia would argue. He was a disengaged father. He and his wife felt awkward in the fancy social settings their wealth now granted them access to. He complained to Patricia incessantly that everyone was trying to take advantage of him, recounting every trade he’d done that day, how he was shorted by some floor specialist, or how a broker had cheated him a quarter point on a stock.

  His sense that everyone was out to get him wasn’t entirely imagined; it was partly a result of the structure of the industry. On Wall Street, a trader at a small firm such as Cohen was competing with banks and brokerage firms filled with starched-shirt sharks. All day long, traders at firms much larger than Gruntal would call Cohen up, trying to sell him blocks of stock at prices they had set. It made Cohen crazy that they expected him to just agree to do whatever trades they offered him. “I can tell you what made him think, a typical situation,” said a former colleague. “Goldman Sachs would call you and say, ‘We’re going to put up 100,000 shares at $90,’ and you were supposed to take the other side of that,” meaning buy some of the shares they were selling. In almost every instance, though, a buyer in Cohen’s position knew that by taking the opposite side of a trade from Goldman he would be getting the worse end of the deal. It was like betting in a Las Vegas casino—the house always has the odds in its favor. Cohen did not want to be the guy making other people rich. He wanted to know why Goldman always seemed to have better information than everyone else. Instead of being used by the Goldmans and the Morgans, he wanted to compete with them. So when Goldman Sachs called, he made it clear that he wasn’t going to do whatever th
ey wanted. He wanted their best trades, their best prices, the information they kept to themselves.

  —

  By the mid-1980s, Cohen was generating so much in commissions with his trading that Goldman and the other big firms had no choice but to try to work with him. Finally, he was starting to get some respect.

  As his stature on Wall Street grew, Cohen realized that he could make even more money by getting away from Aizer and going out on his own. He saw himself as destined for bigger things than Aizer. In 1985 Cohen negotiated a deal with Gruntal that put him in charge of his own trading group, which gave him authority to hire and fire his own traders and negotiate their compensation directly, excluding Aizer completely. Cohen’s status as Gruntal’s most lucrative trader allowed him to bargain for an unprecedented 60 percent share of his profits, plus a 2 to 4 percent “kicker” at the end of the year, depending on how well he did. This brought him one step closer to his dream of running his own fund—and keeping all of the money he made for himself.

  Howard Silverman gave him $8 to $10 million of the firm’s capital to invest and moved him into a larger office on the building’s twenty-third floor, where Cohen set up a basketball hoop, a symbol of his independence. His best friend, Jay Goldman, from Wharton, whose nickname was “J-Bird,” came to work with him, taking the seat next to Cohen on the trading desk. Cohen’s younger brother Donald, an accountant, was hired to check Cohen’s trading records and help him manage the administrative side of his operation. Cohen’s golf pro did clerical work. An assistant filled out his trade tickets. His refusal to write his own tickets, which the brokerages needed to reconcile their trades each day, had almost gotten him fired several times before. Why bother with stuff like that when he could be making money trading?

  Now that he was in charge, his moods and pet peeves became more pronounced. He kept the room at near-arctic temperatures, which he felt helped him think more clearly, and he didn’t adjust it for anyone. His sister Wendy, whom he had hired as a trader, sat shivering in a corner with a portable heater under her desk. One day Cohen stormed in and ripped up all the carpeting in the office because it was distracting him. His group was a collection of strange personalities, mostly drawn from his Wharton or Great Neck past.