July 26, 2013 7:16 pm

Poker whizz with an instinct for trading

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The apocryphal tale is that Steven Cohen was so in tune with the beat of the markets, he could trade merely by listening to the pulse of the ticker-tape machine.

He certainly had an instinct for trading. A young poker whizz from Great Neck, Long Island, he studied at the Wharton Business School in Pennsylvania before returning to New York and joining Wall Street in 1978.

Supposed to eke out low-risk profits from pricing anomalies, Mr Cohen had an appetite for risk-taking that the brokerage firm Gruntal & Co eventually encouraged, allowing the young trader to thrive in the go-go bull market of the 1980s.

Weeks after concluding a long-running divorce battle with his first wife, Patricia, in 1992, he started SAC Capital with colleagues from Gruntal and $25m in cash. The 57-year-old has since remarried and has six children in total, four from his latest marriage, and one stepchild.

Used to splitting his profits with his employer, SAC charged eye-watering fees: a 3 per cent annual management fee, and as much as half of any trading profits made for clients.

In 1999 Mr Cohen gained notice when he produced a 68 per cent return for investors by backing dotcom stocks as the bubble inflated, and acclaim a year later as he surpassed the feat by selling them as it burst.

The fortune that came with such success was put into property, including a $60m mansion with ocean views in East Hampton and funded his taste for modern art.

For instance, after SAC this year agreed a $616m settlement of civil charges with the Securities and Exchange Commission, without admitting or denying wrongdoing, it emerged that Mr Cohen had signed another big cheque – this time a record $155m for Pablo Picasso’s painting “Le Rêve”.

The authorities were intrigued by returns averaging around 30 per cent a year for a hedge fund that at its peak managed more than $15bn. Prosecutors began to persuade a succession of current and former employees to co-operate in the investigation of the firm.

Then this week SAC was indicted on criminal fraud charges. The hedge fund has pleaded not guilty and said it “never encouraged, promoted or tolerated insider trading and takes its compliance and management obligations seriously”.

Mr Cohen, who was not charged, faces an SEC administrative action that he failed properly to supervise his staff that would bar the trader from the industry that he has dominated. Mr Cohen says that he has done nothing wrong.

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