51mzvagt5cl-_sy346_Black Edge is a book about insider trading.  Specifically, it’s about the federal government’s largely fruitless decade-long pursuit of hedge-fund manager Steven Cohen.  While the economy was melting down in complicated ways in the early 2000s, day traders were simply inventing better ways to cheat, and Steven Cohen, in 2008, was the uncontested king of all day traders.

Because the story is a simple one – as opposed to the now-familiar, popularized tales about collateralized mortgages and synthetic CDOs – it is perfect grist for the drama mill.  As drama, Black Edge is spellbinding; as reality, it’s a tale both dark and dreary.

Most people have an instinctive understanding of what insider trading is, and “black edge” is, simply, insider information.  Within Cohen’s corporation a distinction was made between white edge, gray edge, and black edge.  White edge, as the author explains, is “obvious, readily available information that anyone could find in . . . a public document.”  As information goes, it’s not worth much.  Gray edge is more problematic and has more potential, but usually requires input from a hedge fund’s legal department to determine its level of toxicity.  Black edge is illegal material nonpublic information – commonly known as insider information.

“Edge was the water,” the author describes the corporate culture, “and they were swimming in it.”

There is no question that Steven Cohen was the master of black edge.  “Edge was the water,” the author describes the corporate culture, “and they were swimming in it.  And Cohen prided himself on hiring the most determined swimmers.”  Yet by virtue of the organizational structure and operational design of the hedge fund, the man at the top was effectively shielded from all questionable activity below him – activity for which several people, both inside and outside the organization, were eventually tried and convicted.

As with many a gripping drama, both good guys and bad guys emerge, though the author is skilled at conveying the nuances and complexities behind the facts.  Cohen, of course, is the archvillain, a man of almost inhuman intelligence and cunning.  “What came naturally to him was a struggle for most people,” she explains. “It was practically a genetic anomaly, this ability to behave like a reptile while he was trading, as opposed to a human being prone to fear and self-doubt.”

Sheelah Kokhatkar

At the same time, she makes it easy to sympathize with, and even admire, this man who grew up poor in a rich kids’ neighborhood, who possessed a real and rare gift, a genius for trading.  Drawn to what he considered high excitement, he would cut college classes to roam the floor of the stock exchange.  In later life, he described his fascination with the tick tick tick of the tape, as he watched for the tiny dip or rise in the numbers that signaled a trade, learning to guess which way the numbers would go.  “That tick tick tick,” the author writes, “. . . became the key to the future he felt he deserved.”


Surprisingly, Cohen remains in the background for most of the book.  Instead, the story focuses primarily on the toxically seductive relationship between one of Cohen’s day traders, Mathew Martoma, and a leading neurologist at the University of Michigan medical school, Sid Gilman.  Martoma worked Gilman to extract inside information about a drug designed to alleviate the symptoms of Alzheimer’s disease.  His efforts led eventually to a windfall for Cohen’s company, an indictment for Martoma, the professional ruin of Dr. Gilman, and the temporary unraveling of everything Cohen had worked for.

Emphasis on temporary.  Cohen was forced to dismantle his hedge fund and pay $1.8 billion in fines, but was never charged with a crime.  He continues to earn billions each year investing his own money and is poised to reenter the world of hedge funds in 2018.  On top of this discouraging state of affairs, in the end the author delivers a final blow: six people from the FBI, the SEC, and the U.S. attorney’s office – white knights in our story to this point – go to the dark side by accepting employment with prestigious Wall Street law firms, Cohen’s firm among them.

“Most of the good guys remain hard at work fighting the transgressions of high finance.”

After all the ups and downs of the narrative, this in particular seems a sickening turn of events, but as I closed the book a second time, my perspective had shifted.  I no longer feel so certain that the rapacious evils of human nature are the real problem.  Most of the good guys listed in the cast of characters, in fact, remain hard at work fighting the transgressions of high finance.  Some, like SEC enforcement attorney Sanjay Wadhwa, have actually followed a reverse trajectory, spending a few unhappy early years at a powerhouse firm, then going to work for the Securities and Exchange Commission to passionately pursue insider-trading cases.

The author writes that “there are two things that dominate the thoughts of a typical SEC employee: how much more money he or she could be making at a big law firm, and how little credit he or she received for forgoing that opportunity to fight the excesses of Wall Street.”  If this is true, and it’s not hard to imagine, the idea that someone would eventually opt to make millions a year doing a job, in the dispassionate way attorneys are trained to do their jobs, seems irrelevant.  David Boies, after all – a liberal icon since the days of Bush v Gore – was hired by Cohen to help fight the SEC case.  Whether you consider Boies a lawyer or a consigliere seems beside the point.

Steven Cohen

I think the real problem is simpler and starker than this.  As the author explains in her epilogue, the laws on the books have not yet caught up with the growing complexity of the financial industry.  Their power has waxed and waned over the years, and not necessarily in keeping with the rise and fall of political parties.  Nevertheless, the author’s final paragraph reeks of pessimism, as she reminds us of the Trump administration’s fierce drive for deregulation, and Steven Cohen’s imminent return to the game.  The best way I can sum up the experience of reading Black Edge is this:  enjoy the page-turning drama while it lasts, prepare yourself for the final, resounding thud of reality.


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