In news that is beyond parody and a big middle finger to regulators and those simply trying to lead ethical lives, Bud Fox News has learned that Steven Cohen’s Point72 Asset Management is starting a training program. The excerpt below is not from The Onion or some other satirical organization; it’s from Friday’s New York Post:
Steven A. Cohen has hired a hedge fund industry veteran to head a new training program designed to pass the billionaire investor’s stock-picking skills to a new generation as he rebuilds after an insider trading scandal.
The program, which will be composed of an eight-week summer program for 15 college interns/juvenile delinquents and a longer program for 15 recent college graduates/potential convicts, will cover financial modeling, stock research, securities laws (ludicrously, in a 2011 deposition, Cohen said he was not familiar with Rule 10b5-1, the SEC rule that defines insider trading), and, if you can believe it, ethics and compliance. It’s as if Tiger Woods were teaching a class titled How to Resist Cocktail Waitresses and Stay True to Your Wife.
According to sources, the curriculum will focus on three modules:
- Doctor, Doctor: The trainees will interview 50 doctors (all with access to market-moving, non-public drug trial data) and cull out the five best candidates to be dupes in insider trading schemes. Each trainee will have to justify his/her picks with a five-page paper. Coursework will be based on former SAC analyst, and convicted insider trader, Mathew Martoma’s relationship with erstwhile U. Michigan neurologist Sid Gilman, who was oh so eager to help.
- Consulting 101: Trainees will be taught how to extract insider information from the professional consulting class. Rather than use too many examples from SAC’s own knavish history, instructors of this module will perform a case study of the Raj Rajaratnam insider-trading case, highlighting how the urbane Rajat Gupta, the former Managing Director of McKinsey & Company, flushed his reputation (and two years of his life, thanks to a prison sentence) down the toilet by passing to the fat man insider information on Goldman Sachs (Gupta was a board member), P&G (again, board member), and Berkshire Hathaway.
- Six Degrees of Steven A. Cohen: This technique is quite possibly Cohen’s pièce de résistance. Trainees will be taught how to create a complicated chain of communication with sufficient contacts between them and the original source of insider information (Consultant A tells analyst B, who tells trader C, etc…) that trainees will have “plausible deniability” with respect to the current preposterously lenient insider trading laws, which we wrote about here. One might argue that Cohen cunningly used this technique in the Martoma case.
Let’s recap some of Cohen’s accomplishments. Back when his firm was called SAC Capital (the name was changed in March 2014) and before various federal investigations made cynics wonder whether the government would prove too incompetent (it did) and Cohen too slippery (he did) to put the hedge fund manager behind bars, he accumulated $14 billion of assets under management (aka “AUM” and about half his own) while cranking out returns averaging a suspicious near-30% over the course of two decades (Cohen founded the firm in 1992). By 2013, the Feds had come a callin’ as his firm’s outperformance had finally attracted attention from more than just investors who asked no questions about outrageous returns, and SAC Capital (the firm, not Cohen the individual) pleaded guilty that November to insider trading charges and paid the government a record $1.8 billion to settle the criminal and civil charges. In a remarkably cruel move, the feds also banned Cohen from managing money for outside investors, harshly leaving him with no choice but to devote more time to his massive art collection. By the time congenital conman/liar Martoma (who, before getting hired by SAC, was expelled from Harvard Law in 1999 for falsifying his transcript grades, then lied his way into Stanford Business School, where his MBA has since been revoked) had been found guilty in his laughably open-and-shut insider trading case (he is now serving a nine-year sentence) in February 2014, eight SAC analysts had been convicted or pleaded guilty to insider trading.
For the training program, the firm heavily recruited undergrads who had been accused of academic fraud but were subsequently cleared of any wrongdoing. A dean of students at Plainfield Juvenile Correctional Facility, which was targeted by Cohen’s firm, told Bud Fox News about an unusual phone call he received:
I got the strangest phone call from Point72. They wanted the names of all students who had been accused of cheating but were then found not guilty after being investigated. I told the caller that, in each case, I would have to get the student’s permission to release his or her name. When I spoke to the students, I was shocked when they all gave me permission. I mean, they had been accused of cheating, had been on the verge of being thrown out, and were now choosing to tell a potential employer about it, even though they didn’t have to. One student, who may or may not have bribed a teaching assistant, told me that he’d been waiting all semester for the Point72 call.
According to an analyst at the firm who asked to remain nameless:
We wanted to see a willingness to break the rules for personal gain combined with the ability to beat the system. Of course good grades were important, but more important were good grades achieved through academic dishonesty that was never proved.
Those who were granted interviews for the training program quite naturally had to endure predictably asinine Wall Street interviews highlighted by brain-teasers like the one about a midget at the bottom of a thirty-foot well who’s got a ten-foot rope, eight balls, a diaper, a scale, and 24 hours before his oxygen runs out. They also had to go through a rigorous physical test to determine how likely they were to faint under stress (Martoma and fellow former SAC analyst/convict Michael Steinberg both fainted during their interactions with the criminal justice system- Martoma on his front lawn while speaking to the feds, and Steinberg while waiting for his jury to return a guilty verdict).
Said the source about the physical requirements:
Look, insider trading isn’t for everyone. It’s a tough business. If we’re ever going to get our operation up and running again, we can’t have a bunch of fairies who are gonna crack like eggshells under a little pressure. We’re looking for the non-crying version of Martoma.
According to the New York Post article, Cohen will not teach any of the training program classes, but that’s no surprise because he’s always kept some distance between himself and those who do his dirty work.