Black Edge

by Sheelah Kolhatkar

  Strassberg’s closing statement lasted more than two and a half hours. After about forty-five minutes, the jurors began to look put out as he repeated the same points over and over. Then he inhaled deeply. “Mathew’s hopes, his family’s hopes, will be forever altered by what happens here,” he said. “This has been hell for Mathew, his wife, his kids, and his parents. He is not a grain of sand, he is not a means to make a case against Steven Cohen.” As he talked, tears rolled down Rosemary’s cheeks.

  When the jurors returned to deliver the verdict at 1:51 P.M. on the third day of deliberations, it was immediately obvious what they were about to say. Not one looked toward Martoma’s side of the courtroom. Rosemary sobbed as the foreman read the result: guilty on all three counts.

  Martoma’s parents looked stunned as they shuffled out a back door and into the cold. For Martoma’s father, hearing the word guilty after every count felt like three bullets going through his heart.

  When the stories were written the next day, it appeared that a very rich man who controlled one of the largest hedge funds in the world had parted with a negligible fraction of his wealth and skated free from personal culpability. Steve Cohen would continue trading stocks and buying art. All that was left for the prosecutors to do was to make an example of Martoma and claim victory even though they had not reached their ultimate goal.

  —

  To an outside observer, the Martoma case had never made much sense. Martoma had been given ample opportunity to testify against his former boss in exchange for a lighter sentence, and he had refused. Instead, he went through a humiliating trial and now faced more than ten years of jail time. Why? It was the question that surrounded his case for three years. Federal prosecutors who had pursued Steven Cohen for almost a decade were certain that Martoma had information to incriminate him. People charged with crimes like Martoma’s who were facing long sentences almost always flipped. Why hadn’t Martoma played along?

  There was always the possibility that he didn’t have any incriminating information about Cohen. But, even still, whatever he did have would likely have brought him a reduced sentence. The puzzling thing was, he didn’t even try. There were three theories that were most commonly discussed.

  The first was honor. Perhaps Martoma simply could not accept the idea of being an informant. Such a principled stand was highly unusual in white collar cases, and for someone with Martoma’s history it seemed particularly implausible. Could this be the moment when he suddenly chose the righteous path?

  The second was fear. Perhaps Martoma believed he would face some kind of retribution if he crossed Cohen. This, too, was hard to accept. Martoma had already left the financial industry, and for all his ruthlessness as a businessman, there was no evidence that Cohen had ever employed the loyalty enforcement methods of an actual gangster.

  Another hypothesis, the one that was mentioned most often by those involved in building the case, was material self-interest, or that Martoma harbored a desperate hope that Cohen would repay his loyalty. There was no evidence to support this theory, but it was easier to grasp than the others. Money, in the end, is what drives most people on Wall Street, and the case had left Martoma financially ruined. The government ordered him to forfeit his and Rose’s house in Boca Raton, $3.2 million in an American Express Bank account in Martoma’s name, $245,000 in an ING Direct account in Rosemary’s name, as well as $934,897 that was left in the Mathew and Rosemary Martoma Foundation. It turned out that, after establishing the foundation as a nonprofit in 2010 and depositing $1 million into the account and talking about devoting themselves to charity, the Martomas had received a tax benefit for the gift and then barely gave any of the money away. That same year they charged $22,826 in travel and other expenses to the foundation. Everything that was left in the account would be going to the government.

  Rosemary argued that she and the children were at risk of ending up on the street. Neither of their families had the resources to help them, she pleaded to the judge through various court filings.

  The logistics of Cohen funneling resources to the Martomas would be tricky, to say the least. (It would also be illegal, the most blatant form of witness tampering.) Government accountants would quickly seize on any mysterious sources of income. Even though there was no evidence, observers of the case couldn’t resist speculating that something was going on. Rosemary didn’t exactly quell the rumors when she said, in tortured legalese: “There is not, and never was, and never will be, any discussion of Steve Cohen taking care of us.” It sounded to some like a line that had been fed to her by a lawyer. For now, Martoma’s motivations remain a mystery.

  —

  During the weeks leading up to the sentencing hearing, the Martoma family fell into a state of anguish. Their nightmare had finally come true. Among the most painful blows was a letter from Stanford stripping Martoma of his business degree for having lied on his application.

  Nonetheless, Rosemary threw herself into asking friends, colleagues, and relatives to send letters of support to the judge determining Mathew’s sentence. Mathew put aside his pride and asked his former ethics professor at Duke, Bruce Payne. Payne felt bad for his former student, someone he’d once considered a friend, though he also knew that Martoma had deceived him when he asked him to write recommendation letters to Stanford’s business school without disclosing what had happened at Harvard. This was too great a transgression. Payne told Martoma he couldn’t do it.

  Largely due to Rosemary’s efforts, however, plenty of others did send letters, dozens of cousins, uncles, and aunts, many of whom were medical doctors, some from as far away as India. Their letters featured several recurring themes: that Mathew’s incarceration would unfairly punish his three young children, that Rosemary was a fragile person who would be devastated if Mathew were sent away, and that she wouldn’t be able to care for their children on her own. Some argued that Martoma had already suffered enough. There were allusions to an ailment Rosemary suffered that made her weak—it sounded practically Victorian, and didn’t fit the forceful personality who had been so deeply involved in Martoma’s defense. The prosecutors were dismissive when they read about it. As Devlin-Brown later pointed out, there weren’t any letters from a doctor or a psychiatrist confirming the diagnosis.

  Martoma’s father, Bobby, wrote an impassioned thirteen-page letter, including photos of Martoma as a young child, smiling and wearing a pin-striped suit and necktie. After describing his searing paternal disappointment when Martoma didn’t attend Harvard for his undergraduate education, Bobby wrote: “Almost 22 years later, today, I feel, maybe I pushed him too far to accomplish my dream. We pressed him to excel until he maxed out.”

  Rosemary knew the odds were against her husband. Strassberg and Braceras had tried, as sensitively as possible, to prepare her for what was coming. Jail terms in insider trading cases were often severe. Rajaratnam had been sentenced to eleven years, for example, and a Galleon trader named Zvi Goffer had gotten ten. Still, she clung to the hope that Mathew might be spared. She prayed for it every day.

  At 3:30 P.M., on September 8, 2014, Martoma again stood before Judge Gardephe, waiting to hear what would happen to him. According to the sentencing guidelines, he faced up to nineteen and a half years in prison.

  The judge recapped the damning narrative: the phone call between Gilman and Martoma on July 17, 2008, when they reviewed the PowerPoint slides; Martoma’s flight to Detroit and his meeting with Gilman in his office; the twenty-minute phone call with Cohen the next day; SAC’s secret sales of all of its Elan and Wyeth shares the next week. While the government never named Cohen in the case, he was central to the story of Martoma’s crime.

  “Given this sequence of events,” Gardephe said, “it is much more likely than not that Cohen did, in fact, receive material, non-public information from Martoma.” For the purposes of sentencing, Martoma could be held responsible for all of it.

  “Mr. Martoma has been ruined by this prosecution,” the judge said. And
yet, he added, in order for his case to deter others, “I find that a substantial sentence of imprisonment is necessary.”

  Rosemary hung her head. Gardephe paused. He seemed genuinely saddened by what he was about to do. “I intend to impose a sentence of nine years’ imprisonment.”

  It took a moment for this to sink in. Nine years. Rosemary started to cry.

  There was a long moment of quiet after the judge left. Then Rosemary took Mathew’s hand and they walked out of the courtroom.

  —

  Martoma’s parents had stayed quiet for months, pushing bravely through a crowd of photographers on their way in and out of the courthouse every day, never saying a word. Staggering out into the bright sunlight after the verdict, however, they exploded with rage.

  “He was framed!” shouted Lizzie Thomas, Martoma’s mother, at the base of the courthouse steps. Her eyes were blazing. She couldn’t take it anymore.

  “I’m his father,” Bobby Martoma said, standing beside his wife. “If the prosecution knew, when the two agents approached in Boca Raton, three years ago—if they knew that Mathew was guilty, why did they tell him that they wanted to recruit him as an informant? What was the reason?” Bobby went on, “If he was guilty, they should have said, ‘You are guilty, we are going to proceed with the case! Instead they said, ‘We want to recruit you.’…

  “He was framed,” Bobby continued. “Who made the money? Somebody made $275 million, and they put all the blame on Mathew! Today the judge put all blame on him. That judge, there was no justice from that judge. This was nothing but a mockery. This is the U.S. system.”

  “Who made the money?” Lizzie interjected. “My son made $9.3 million out of that, and $3 million went for the tax.”

  Why, then, someone asked, didn’t Mathew cooperate with the prosecutors and help himself? Why didn’t he help them get the man who made the money, Steve Cohen?

  “You want me to tell you?” Bobby answered, jabbing his finger in the air with righteous anger. “Because he believes in the Ninth Commandment. You know what is the Ninth Commandment? Thou shall not bear false witness against thy neighbor.”

  “The person who made the money is on a yacht,” Lizzie said, in apparent reference to photographs Cohen’s wife had posted online that summer of their sailing trip around Greece. “And my son is going to jail.”

  “This is not justice,” Bobby said.

  EPILOGUE

  On May 11, 2015, eight months after Mathew Martoma was sentenced, Christie’s hosted a special themed evening sale for the world’s top art collectors at its headquarters at Rockefeller Center. The auction was called “Looking Forward to the Past,” and it was built around a carefully selected group of twentieth-century masterpieces, a mix of contemporary and slightly older works that, during a time before hedge fund moguls had turned art acquisition into a competitive sport, might have lived in major museums. The big prize of the evening was a Picasso painting called Les Femmes d’Alger that was expected to sell for $140 million. In all, the night was anticipated to be a record-breaking sale, a coda to a worldwide boom in the art market fueled largely by Wall Street money and exploding wealth in Asia. One of the paintings going up for sale was from Cohen’s collection, Paris Polka, by Jean Dubuffet, which had an estimate of $25 million.

  While his former protégé Martoma was appealing his conviction and preparing for a new life behind bars, Cohen had been anything but quiet. With assurances from his legal team that the threat of criminal charges was all but gone, he started to move aggressively to show the world that he was still as powerful as ever. He made a trip to Davos and sat courtside at Madison Square Garden, in full view of the television cameras. On November 10, the day Martoma was supposed to start serving his prison term, Cohen made news by spending $101 million at Sotheby’s to buy an Alberto Giacometti sculpture called The Chariot.

  “Steve is a very serious, very astute collector,” gushed William Acquavella, one of Cohen’s art dealers, in The New York Times. “He also has just the right instincts, ones that can’t be learned from reading art history books.”

  Cohen had been working to cleanse his reputation on Wall Street as well, trying to create distance between himself and the legal scandal. As required by the criminal settlement with his company, Cohen had closed SAC and turned it into a private family office that invested only his own money, close to $10 billion. It was important to him, that $10 billion figure.

  In April 2014, three months after Martoma was convicted, Cohen changed his firm’s name from SAC Capital Advisors to Point72 Asset Management, a reference to its address at 72 Cummings Point Road in Stamford. He also removed his top associates and advisors who had helped guide him through his legal troubles. Steven Kessler, SAC’s head of compliance, left, as did Tom Conheeney, SAC’s president. Sol Kumin, Cohen’s director of business development, who had been involved in hiring many of the traders who got into legal trouble, also moved on and started his own hedge fund. Cohen looked for a new head of compliance, and a recruiter contacted several prosecutors and FBI agents who had been involved in the investigation of SAC.

  Eventually, Cohen hired a former Connecticut U.S. Attorney to be Point72’s general counsel and announced plans for a six-person “advisory board” that would be made up of high-profile business leaders who would advise the firm on management and ethics issues. In a bit of dark comedy, Cohen started a program for college students called the Point72 Academy, a “highly-selective and rigorous 15-month training program” that purported to teach investment strategies to young people seeking careers in finance.

  The SEC’s case against Cohen for failing to supervise Martoma and Steinberg was still unresolved. The agency wanted to bar him from the securities industry for life, but Cohen was fighting it. He hired the celebrity defense lawyer David Boies to join the legal team working on the SEC case. He told friends that he expected to run another hedge fund in the not-too-distant future, something that would likely be impossible if the SEC won its case. In the meantime, Cohen’s “family office” was earning him hundreds of millions of dollars a year. He was still trading billions, he was still buying art—eight years and every resource the government could direct at him couldn’t stop him.

  —

  Over the course of the three years in which I conducted the reporting for this book, I was in and out of contact with Cohen’s office, attempting to arrange an interview with him. I called and wrote letters and had meetings with his representatives. There had been hints that he might eventually speak to me, but he never came through. I was determined to talk to him. I knew that he would be at Christie’s that evening in the spring of 2015, so I went to see him there.

  The night of the auction, the Christie’s building was overflowing with women of multinational identity whose cheekbones could have sliced a wheel of Brie and men who looked too rich to possibly care about the financial crisis in Greece, which was dominating international news headlines. It was a feverish atmosphere. A glamorous game was about to be played, one whose winners would be parting with enormous sums of money.

  Around 6:30 P.M. Cohen’s former trader David Ganek glided through the lobby with his shirt unbuttoned to the middle of his chest, looking as if he had just stepped off of a yacht. Then, just minutes before the auction’s 7 P.M. start time, Cohen walked in.

  He was short and slightly pear-shaped, in a gray zip-neck sweater and khaki pants, and he appeared to be by himself. His cheeks were pink, and he was smiling his gap-toothed smile as he waded into the crowd. He looked like a kid who had just entered FAO Schwarz. It was the ultimate power move, arriving five minutes before the scheduled start time of one of the most hotly anticipated art auctions of the season. Cohen knew they couldn’t begin without him.

  I stepped in front of him as he entered the hallway leading to the table where the bidders collected their paddles. “Hi,” I said, introducing myself. By this point, I had done hundreds of interviews with his former colleagues, employees, and confidants. I felt like I kn
ew him as well as anyone did.

  “Oh, it’s you,” Cohen said. He froze.

  “I’d really like to talk to you,” I said, grabbing his hand and shaking it.

  “I bet you would like to talk to me, I bet you would,” he said. He started looking around for a way to escape.

  “You won,” I said. “I think you have a great story to tell.”

  “I don’t think I can talk to you,” he said, moving away. “But never say never….”

  As he slipped off into the crowd, I squeezed in one last question: “Are you buying or selling tonight?”

  “Oh, selling,” he said. “Selling.”

  He walked up the two flights of stairs to the packed gallery, where the auction was about to begin. Fifteen minutes later, another of Alberto Giacometti’s bronze sculptures, L’homme au doigt (Pointing Man), came on the block. It is widely considered one of the artist’s greatest works.

  For Cohen, who had just come through a challenging time, the sculpture was a sign of his own future, which was brightening again after several years under a legal shadow. The government had made its best effort to bring one of the wealthiest men in the world to justice and left him largely in the same condition he had been in before. Cohen was a survivor, a symbol of his time in history in more ways than he would likely want to acknowledge. Free from fear, he could buy anything he wanted. After several rounds of aggressive bidding, he placed the winning bid for the Giacometti, at $141.3 million. It was the most money anyone has ever paid for a sculpture at auction.

  —

  After Preet Bharara led the investigation into hedge funds that turned him into a national celebrity, the legal system delivered a stunning rebuke. In December 2014, an appeals court overturned the convictions of Todd Newman and Anthony Chiasson, from Diamondback and Level Global, respectively, funds that had strong ties to SAC. The judges reprimanded Bharara’s office for being too aggressive in charging traders who were getting inside information indirectly, from friends or employees, rather than from the company insider himself. In what came to be known as the “Newman decision,” the court said that in order for a trader to be prosecuted for trading on material nonpublic information, he or she had to be aware of the benefit the original leaker of the information had received. In many of the insider trading rings, traders got earnings or revenue numbers from other traders, knowing that they originated with someone inside the company and little else. The court also ruled that the benefit the leaker received in exchange for sharing the information had to be something tangible, akin to money. Friendship or favor-trading on its own was not enough.