Steven “Steve” Cohen’s name still sparks controversy on Wall Street. He is a legendary trader who built one of the most successful hedge funds ever, yet his legacy is clouded by a famous insider trading investigation.
In the early 2010s, Cohen’s hedge fund, S.A.C. Capital Advisors, became the focal point of one of the biggest insider trading crackdowns in Wall Street history.
Federal prosecutors and the FBI spent years probing S.A.C.’s trades, flipping informants and tapping phones, ultimately pinning multiple insider trading cases on the firm’s employees.
Cohen himself was never criminally indicted, but S.A.C. Capital’s downfall in 2013, amid charges of rampant insider trading, cemented his reputation as a controversial figure in high finance.
The story of Steve Cohen and S.A.C. Capital is not just about one man’s troubles; it highlights the government’s drive to police hedge funds and the lasting changes it imposed on the industry.
TLDR
- Steve Cohen’s hedge fund, S.A.C. Capital, was at the heart of a major insider trading crackdown in the early 2010s.
- Eight employees were convicted or pled guilty to insider trading under his leadership.
- In 2013, S.A.C. Capital pleaded guilty, paid $1.8 billion in fines, and shut down its outside investment business.
- Cohen was never criminally charged, but the SEC banned him (2014–2018) from managing outside money.
- He relaunched under Point72 Asset Management, initially as a family office.
- His legacy remains divisive, a mix of trading brilliance and regulatory scandal.
Steve Cohen’s Insider Trading Allegations
Cohen’s troubles began when S.A.C. Capital landed in the crosshairs of an intense government insider trading probe.
Starting around 2009, U.S. authorities launched an “unrelenting crackdown” on insider trading at hedge funds.
Preet Bharara, the U.S. Attorney in Manhattan, led the charge, wiretapping traders’ calls and pressuring informants, and S.A.C. Capital, a $14–15 billion fund at its peak, became a prime target.
Over several years, investigators uncovered what they believed was a culture of illicit information sharing at S.A.C., where getting an “edge” sometimes meant getting illegal inside tips.
In fact, Bharara’s team even considered indicting Steve Cohen personally.
While they ultimately stopped short of charging Cohen as an individual, in July 2013 the Justice Department filed criminal charges against S.A.C. Capital itself, an extremely rare move against such a large fund , accusing the firm of insider trading committed by numerous employees over a decade.
It was clear that the government intended to make an example of Cohen’s fund.
Charges Against S.A.C. Employees
As the investigation unfolded, several of Steve Cohen’s own traders were charged with insider trading.
In total, eight S.A.C. Capital employees either pleaded guilty or were convicted of trading stocks on illegal tips under Cohen’s watch.
Among them were two of Cohen’s portfolio managers who became notorious examples of the scandal:
Mathew Martoma
A portfolio manager at an S.A.C. affiliate, Martoma orchestrated what federal prosecutors called the “most profitable insider trading scheme ever”.
He obtained confidential trial data about an Alzheimer’s drug and used it to trade pharmaceutical stocks, netting roughly $275 million in illicit gains for S.A.C.
Martoma was convicted in 2014 and received a nine-year prison sentence, becoming a central figure in the case.
Michael Steinberg
One of Cohen’s close confidants and a senior trader at S.A.C., Steinberg was charged with trading on insider information about technology stocks. He was initially convicted in late 2013, seemingly confirming the government’s claims that insider trading reached high into Cohen’s inner circle.
However, in a twist, Steinberg’s conviction was overturned after an appeals court in 2014 narrowed the legal definition of insider trading, causing prosecutors to drop the case.
This reversal highlighted how tricky insider trading cases can be, but it didn’t erase the fact that multiple S.A.C. staff had been caught crossing the line.
2013: S.A.C. Capital’s Guilty Plea
By late 2013, the investigation reached its climax. S.A.C. Capital Advisors (the firm) agreed to plead guilty to insider trading charges and shut down its outside investment business as part of a landmark deal with prosecutors.
In November 2013, S.A.C. admitted criminal responsibility and paid a staggering $1.8 billion in penalties, one of the largest fines ever on Wall Street.
According to the Justice Department, S.A.C. was the first major Wall Street institution in a generation to plead guilty to such misconduct.
This was more than just a hefty fine; it effectively put S.A.C. out of business as a hedge fund. Under the plea agreement, Cohen’s firm had to stop managing money for outside clients, meaning S.A.C. could no longer operate as a typical hedge fundreuters.com.
Cohen, who owned 100% of the firm, was allowed to continue trading his personal fortune (around $9–11 billion) but only under new restrictions and oversight.
Prosecutors touted the outcome as a major victory.
SEC Ban: Cohen Can’t Manage Outside Money (2014–2018)
Even though Cohen wasn’t criminally charged, regulators didn’t let him off scot-free. The Securities and Exchange Commission (SEC) had been separately investigating Cohen’s role and, in July 2013, accused him of failing to supervise his employees who committed insider trading.
In 2016, Cohen settled the SEC’s case by agreeing to a two-year ban from managing outside money.
He neither admitted nor denied wrongdoing, but the deal barred him from overseeing funds for clients until January 2018.
Essentially, for two years Cohen was allowed to invest only his own money, not anyone else’s.
For Cohen, the SEC ban was a setback but also a lifeline. It prevented a potential lifetime ban and allowed him a path to eventually return to the industry.
Launch of Point72 and Return to Outside Capital
Steve Cohen didn’t stay down for long. After biding his time, he re-opened for business to outside investors as soon as his ban expired.
In 2014, Cohen had rebranded S.A.C. Capital as Point72 Asset Management, a family office managing only his personal wealth.
Once the regulatory restrictions were lifted in 2018, Point72 promptly began accepting outside capital, effectively launching Cohen’s new hedge fund era. Investors were eager to invest with the famed “hedge fund king” despite the controversy.
In fact, within months Point72 raised about $3 billion from outside clients, quickly closing to new money after hitting that markreuters.com. It was a sign that, scandal or not, Cohen’s reputation as a trading wizard still carried weight.
Cohen’s return also came with a public image makeover. He had vowed that Point72 would operate with the “highest ethical standards,” reportedly telling his staff that “what happened to S.A.C. would never happen to Point72”.
The comeback has, so far, been successful. Point72 has grown and produced profits (albeit with a few bumps), and in 2020 Cohen even stepped further into the limelight by purchasing the New York Mets – instantly becoming one of the most high-profile team owners in sports.
What Remains of Steve Cohen’s Legacy?
Today, Cohen’s legacy is a mixed bag. On one hand, he’s revered by many as a trading legend who built two multi-billion-dollar investment firms and continues to succeed. On the other, his name will forever be linked to one of Wall Street’s biggest insider trading scandals, a cautionary tale of how a relentless drive for profits can cross legal and ethical lines.
In the end, the S.A.C. Capital crackdown did shake up the hedge fund industry, if only by reminding everyone that no one, not even a billionaire hedge fund king, is above the rules.