Since federal investigators stunned Wall Street by raiding three hedge funds and issuing subpoenas to several others in 2010, all eyes have been on SAC Capital, the $14bn hedge fund accused this week of insider trading on an unprecedented scale.
The hedge fund has defied investment gravity since it was founded by its star trader, Steven Cohen, in 1992, regularly generating 30 per cent annual returns and confounding financial theories about the efficiency of markets.
Mr Cohen also cultivated an interest in modern art, turning heads as he built a stunning collection of work by Picasso, Pollock and Monet to hang on the walls of his $25m mansion in Greenwich, Connecticut.
Yet Wall Street has a vested interest in SAC beyond the spectacle of its fall from grace. The rapid-fire trading style used by Mr Cohen turned SAC from a little-known trading house into a hedge fund with offices around the world and more than 1,000 employees – and a prodigious payer of trading commissions to banks.
Such clout made the 57-year-old a feared and admired presence on the trading desks of investment banks, known for his relentless desire for an investment “edge” – the most up-to-date information that would keep him one step ahead of the market – but also a valuable one. At times responsible for whole percentage points of the daily volume of stock trades made through the New York Stock Exchange, SAC has paid out billions of dollars to the banks and brokers of Wall Street.
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