Transcripts For CSPAN QA With Sheelah Kolhatkar 20170320

4 who is steven cohen . He built up an a enormous personal for tune on the basis of his incredible skill for trading. So he had a strong instinth for the stock market. He would sit down and look at the way stocks were trading and believed to have an incredible sense of how to ride the waves in the market and make money. He has this very compelling almost rags to riches story. He grew up very middle class and long island. His family has less money than a lot of others around him. He felt a sort of hunger to become rich. He started playing poker in high school. Very quickly built up a for tune. He has a mansion in connecticut, helicopter rides, works of art. He became an object of extreme envy. Sac. His initials. E embodied the firm. Theres a moment you say in your book he wouldnt talk to you. Tell us about that. I had spent several years reporting this book. I went about doing that the i had a lot of Court Documents interviews with people and i tried to convince him to sit with me. Of course i would have loved to talk with him. By the time the story you reach its conclusion he had won the legal case and thought he may have a compelling reason to talk now. E beat the system. I heard he was going to attend an art auction. I met with his staff. They always said maybe. But they never said no. So i ambushed him. I knew it was a powerful moment for me because i felt like i knew him so well at this point. I had spoken to dozens of people who had worked with him, family members. We had a brief exchange, and he left as soon as he figured out who i was, he said, i dont think i can really talk to you, and sort of ran away. He looked very relaxed. He arrived just before the auction was set to begin, which i thought was interesting because he is so important in the art world. Hes one of the biggest and most important modern art collectors in the world. He knew that they would never start without him. Hes p i knew he was selling a painting out of his collection. He said, oh no, i am selling. He went to the auction, and a few minutes later he paid 140 million for a sculpture. Brian let me stop you. Lets look at a little piece of video when he paid 141 million for. Watch this. [video clip] a man raises his arm. A man clinches his fist. Man is the indissoluble unity and the absolute source of his movements. Brian how could that be worth 141 million . [laughter] sheelah it is worth whatever someone is willing to pay for it. Thats how the market works. It is interesting because i think coen is recorded to have purchased at least two of the sculptures for that range. He bought one prior to this one, i think that was pointing man. Another one called chariots, as well. I think part of the reason the price has become so elevated for these particular works of art is because there is a very small group of Hedge Fund Billionaires have become competitive about art collecting. I think it happens to a lot of them that they achieved a lot of Financial Success fairly early and realized that they were still not seen as these sophisticated, culture people. They were just seen as wall street guys. Many of them became interested in the art world. It was this way to enter a whole other universe of high culture. You have your photo op year and the society pages, and get your name on the wall in a museum. Many of his contemporaries became really interested in art, and they end up in this arms race, bidding up certain artists into these stratospheric prices. A lot of people believe there is a big bubble in the art market. Brian how much is he worth today . Sheelah i believe its at least 10 billion. By the time all of this legal drama ended, he was forced to shut down his hedge fund, but he was still allowed to manage his own money through his private family office. Hes got a pool of his own money, upwards of 10 billion, and he still trades it everyday in the market, so his lifestyle is largely unchanged from what it was before. Brian how many people when he said sac capital went to prison or were convicted . How many around him . Sheelah at least eight were either convicted or pled guilty. However, these were either former or current sac employees. A handful of others were connected to Insider Trading more indirectly. However, the two central characters at the heart of the story, they are very central in my book, are these two former Portfolio Managers for his funds, Matthew Martoma and Michael Steinberg. Martoma is serving a lengthy prison sentence. Although his cases on appeal. And, mr. Steinberg was convicted, but was overturned after an appeal made it harder to convict someone for Insider Trading. He is now doing other things with his life. Brian has Stephen Cohen ever been convicted or charged of anything . Sheelah no, absolutely not. Well, i should clarify. The fcc did charge him with failing to supervise his employees. It was a fairly light charge that was settled for a financial penalty and some modification to his business. He was never charged with any crime himself. There is sort of a dramatic moment in the story where the government, the department of justice, fbi, and the sec lawyers had spent years trying to build up a case against stephen tell. They had been trying to flip people and get to operators. They had wiretaps on people. They had been tracking him for years. By mid2013 there is this sort of dramatic moment where they have to decide, ok what are we going to do. The entire world was watching. A very high profile case. The financial industry was sort of riveted, wouldnt to know whether this huge star of their world was probably going to go to jail. I describe this scene in my book where mr. Cohens lawyers came in to meet with the prosecutor said make a presentation and tried to persuade them not to charge their client. This is something that apparently happens. Defendants are given the opportunity to come in and sort of present their defense. So a handful of very highpriced defense lawyers came in there he and there were around 17 government attorneys present. Lawys, psecutors, others who had been involved in different aspects of the case. Mr. Cohens lawyers made a fourhour presentation. They may get the agreement that he read a critical email they believed contained evidence of Insider Trading. He knew the government was nervous about losing a big case, so they really targeted that weakness. They said you have no one to put on the stand to say they saw him do it or talk about it with him. There is no evidence he read this email. Even if he did, it might not be illegal. They hammered that point home over and over again. They still felt fairly sure of what they felt, which is that there might be something. They had to go and have a hard conversation about the evidence they had and what they can do with it. They ended up deciding they did not have enough evidence to bring to a jury and be sure that they could win. They ended up indicting cohens company instead of cohen himself. Brian and that company paid how much . Sheelah in total, 1. 8 billion. One chunk was an fcc fine, and the other was a criminal settlement. Brian once in a while i see that you were a trader. Where did that start . And we need to define things, like what is Insider Trading . Sheelah one of the reasons i became interested in this story and it connected with me is because i started my career working at two very small hedge funds. I was an analyst, a little different from a trader. The analyst is sort of the egghead who does the research. Traders sit there and decide sell. O buy and my job was to try and analyze our investments and help guide a Portfolio Manager in making these decisions, and then a trader would execute them. Its important to understand this word edge to understand the concept of Insider Information. Inside Steven Cohens former hedge fund, sac, was this Portfolio Manager who had this system that he tried to teach to the guys working for him so they could stay out of trouble. It is a constant concern that you are going to end up with some information you shouldnt have. Hedge funds are very driven by information. The better the information you have, the more likely you are to make money. If you have bad information, you are going to lose money. Everyone is out the new market trying to get the best, sharpest, most useful information. Brian let me ask you about a hedge fund. Can i invest in a hedge fund . Sheelah that depends on what your investable assets are. In general, hedge funds are intended to cater to wealthy investors who can afford to lose the money they put in. Brian was the difference between buying a stock from a company or through a broker and investing in a hedge fund . Sheelah hedge funds were conceived as this boutique, rarefied product catering toward wealthy investors. The idea was a hedge fund was going to take a lot more risk in the markets, potentially, then a regular mutual fund at fidelity or state street. Regulators looked at this and said, if you are going to be taking all this risk and borrowing money and trading it, or if you are going to be shorting stocks, which is betting that a stock will go down rather than up, a very risky activity, not everyone does, the sec said you can only do that if you are taking money from people who can afford to lose the money. We dont want you taking money from middleclass dentists or teachers or whoever. Who will be devastated if they lose this money. Brian why is the government protecting . Sheelah thats the purpose of the regulators, to make sure the market is fair and regulated and that no one is getting fleeced by these hedge funds. Brian how many are there . Sheelah thousands. Brian do they all make money . Sheelah i would argue most of them do not, but a handful make a tremendous amount of money, and they have made the founders of the hedge funds extremely wealthy. Partly this is because they charge very hefty fees, much higher than you would pay at any of your mutual fund companies. Like vanguard. I mean, they charge typically 2 to 3 of the assets they are managing. Brian if i gave them 1 million, they would take 2 off the top. Sheelah just to cover their overhead. At the end of the year, they figure out what profits they made. Brian lets say they make 100 profit. In other words, the whole hedge fund starts out being worth 10 billion, at the end of the year is worth 20 billion. Sheelah they look at 100 profit, and depending on the fund, they will take 20 , sometimes even 50 of that profit and keep it for themselves. That is known as an incentive fee. That is motivation for the Hedge Fund Manager to not do anything really foolish and to work really hard. Brian how much did mr. Cohen make . Sheelah even with high fees, his returns were spectacular. Especially during the early period. He was often returning 30 , 40 , 70 , and investors were fighting to get into his fund all the time because he was just churning out profits. Brian when did you work in his hedge fund . Sheelah i was working in a hedge fund from around 1998 to 2002. Brian how big was the office . Sheelah tiny. Fewer than 10 employees, both of them. This is how steve cohens hedge fund began, by one or two people who did not want to go work at Goldman Sachs. They did want to have to deal with the big corporate culture. They didnt want to wear suits. They were smart and just wanted to make money. They were scrappy and ambitious. A lot of these hedge funds were shops opened by two or three people. Often, especially if they were doing well, they would grow very quickly. Brian lets say you were at this small hedge fund, and i have a lot of money, and i call you up and go, who do i talk to . Sheelah it depends. If you are a brandnew, small hedge fund, you may speak to the fund manager. If you are a slick, sophisticated, multibillion dollar hedge fund, you would be to someone there to cater to investors. Brian lets say i would like to invest. Do i just write a check . Sheelah its a little more complicated that. You have to kind of prove you have enough net worth to qualify to be an investor. It is also possible, if it is in demand, it might not take money from anybody. This often happens with the really hot, highperforming ones. They can kind of pick which investors they want. Brian what kind of people work sheelah o you mean the staff positions . Brian you walk in, d where do these folks come from . Male, female . Minorities in the business . Sheelah sure. I will say hedge funds became very quickly one of the most efficient vehicles to become extremely wealthy. They became known as places to go if you want to get really, really rich. You can make more money and a hedge fund than at a big Bank Goldman Sachs or jpmorgan. Eventually, over time, hedge funds started attracting the best students out of ivy league colleges. Math graduates from m. I. T. , young, ambitious, hungry kid with phds in science and computer programming. Often these people are flocking to hedge funds. Brian where did you come from to a hedge fund . Sheelah i came from a very different background. Brian where did you grow up . Sheelah toronto. Brian parents were from . Sheelah my father is from india. My mother is from the midwest. Brian is that name indian, kolhatkar . Sheelah yes, it is south asian. Brian there are a lot of Indian Americans you are writing about. Did that cross your mind . Sheelah it was obvious. It was remarkable. There are a lot of south asians in all corners of the government, the hedge fund world. I would occasionally ask people if anyone thought about that, and the one explanation i got was that many of these insidertrading rings that the government was pursuing spring up out of personal relationships and personal networks. Often, people end up involved in that kind of behavior with their friends and ople they nt college with, so you would end up with these circles of people where you would have certain groups overrepresented. It was interesting to me. Brian you went to school where . Sheelah i graduated from nyu. Brian in what . Sheelah i have a degree in film. Brian and what did you do after you worked for the hedge fund . Sheelah i spent about five years working for these two hedge funds. It wasnt at all what i intended to do, as you can discern from the fact that i have a film degree. I fell into it by accident. The whole time i was there, i learned a tremendous amount and loved it. I felt a bit like an anthropologist in this world that was really foreign to me. Every year i would say to myself, ok, im going to do this for one more year and then get out and go become a writer or journalist. Every year, i would get a bonus and think, well, maybe i should stay a little longer. I think that is what draws a lot of people into that world, the money draws people in. Brian did you make a lot of money while youre there . Sheelah not relative to what would be a lot now. But for me at the time, it was a lot. Brian and now . Sheelah im a staff writer at the new yorker. Brian this is a very detailed book. About a lot of names and all we wont be getting into. But i want to jump into something from 2011, thanks to pbs frontline. It is available on the website if you want to watch. Here is Stephen Cohen in a deposition which i want you to explain. [begin video clip] do you have an understanding about if you are ever allowed to trade . Thats not the way its explained to me. The way i understand it law, is it is very vague. It is an interpretation of the law. You understand the fcc rules on trading and Insider Information is that they do not preclude unequivocally trading while in possession of such information . Im not aware of that. Youre not aware . No. [end video clip] brian what do you see there . What is that from . Sheelah it is the video of a deposition he gave in a case that was a private, commercial litigation involving a Company Called fairfax, a canadian insurance company, that accused a bunch of hedge funds of manipulating its stock. Brian did you watch all of that deposition . Sheelah i watched some of it. Im not certain i watched all of it. Brian its available on the pbs frontline website, if people want to watch it. Sheelah it is interesting. I remember when those were leaked, it was quite dramatic. Brian we are going to jump around. If people want to know more, it is in the book. I want to go to 2008, chicago, illinois. Dr. Sid gilman. Set it up, please. Who is dr. Sid gilman . Sheelah dr. Ilman was a very accomplished alzimers researcher at the university of michigan. He was head of the medical department there. He authored medical papers, mentored students, helped with drug trials. He was a lion of the scientific community. Very highly regarded. He was in his 70s at the time many of the events in the book place. At one point, one of steves Portfolio Managers, Matthew Martoma, decided he wanted to research a drug trial. He wanted to invest in the development of this drug. There were two Drug Companies trying to invent a cure for alzheimers. Brian elon and wyeth. Both have been purchased since. Pfizer took over wyatt. Wyeth. Sheelah developing a drug is extremely expensive. Going through the drug approval process is expensive. Often, companies will team up to do this. Thats what these two did. Matthew martoma, when he arrived, he was very ambitious. He was looking for a winning trading idea. He was an expert in Technology Stocks and bioTechnology Stocks and Drug Companies. He had been tracking the development of this alzheimers drug. There was tremendous commercial potential for this drug, basically for any company that found a cure for alzheimers. There were billions of dollars to be made. So he started looking around for people who could help him learn more about thidrug trial. He ended up becoming connected to dr. Gilman. Over a number of months, cultivated a relationship with dr. Gilman that culminated in him getting allegedly inside information from dr. Gilman about the drug trial. There is a very dramatic moment that i recount in the book where dr. Gilman appears at a medical conference in chicago, i think in july 2008. It is this big unveiling of the final trial results of this alzheimers drug trial. This auditorium at the hotel in Downtown Chicago is packed. There are researchers, doctors, traders and analysts from wall street, because all of wall street has been gambling one way or another on the outcome of this trial. So dr. Gilman stands up there and clears his throat, and announces the drug trial results on a powerpoint. He was trying to be optimistic, because i think he was so hopeful, and wanted so badly for this drug to work. But ultimately, the people in the audience understood that the trial had shown that the drug was not working. It was not becoming more effective if you took a higher dose. There were all sorts of problems with it. Immediately, everyone on wall street starts trying to sell. These code red alerts go out. Everyone is dumping their shares. Turns out martoma had allegedly gotten this information the week before, and sac capital had shorted the two stocks. It really illustrated the difference there. All of these people who did not have the benefit of that information earlier ended up losing money because stocks plunged. Brian did you interview dr. Gilman . Sheelah no. Brian did you interview matt martoma . Sheelah no. He changed his name at one point. Brian why . Sheelah you would have to ask him. Brian where is he now . Sheelah in prison in florida. His case is on appeal. Brian is he from india originally . Sheelah his family is of indian descent. Brian there was a time when this man fainted in your story. Sheelah yes. There are several fainting men in my book. Brian just dropped. Sheelah the fbi, one day the fbi decided they were going to pursue him. One of the main characters in the story was this very ambitious, toughguy fbi agent. Brian korean american . Sheelah yes. He went down to florida to approach mar at his home in boca raton. It was their hope he would flip and become an informer. There was this conspiracy involved dr. Gilman and the drug trial. Brian was it in order to get steve cohen . Thats who they wanted him to flip . Sheelah i think that was their ultimate hope. They would probably never admit that officially. But it seems quite clear from the way they were behaving. Martoma himself was a worthwhile target on his own. But yes, i think they had a lot of questions about what he had shared with cohen. So bj kang went down there and confronted martoma on his front lawn, and said i want to talk to you about Insider Trading. What happened in july 2008. And he fainted. King shook his head. He had been working on this case for years. Brian bj kang is in the first sentence of your prologue. Sheelah hes a key figure in this thing. He was one of the central fbi agents who investigated these cases. He did some of the big arrests. He arrested another big Hedge Fund Manager, who was charged before the martoma case. Brian hes originally from sri lanka, where is he today . Sheelah he is in prison i believe in upstate new york. I would have to double check. Brian what is hard for the outsider to understand is, you talk about three groups of people from the government that make a difference. The sec, the fbi, and the u. S. Attorneys. You talk a lot in the book about how there is jealousy between the two departments. Lets review this. Sheelah the top prosecutor in manhattan for the federal government. Very important Law Enforcement figure. From india. [begin video clip] we are here to introduce a resolution that is matching. All of the involved companies have agreed to plead guilty, winding down and close their outside investment businesses and all have agreed collectively to pay total finds it yet in the record amount of 1. 8 billion. [end video clip] brian who is his man and how did he get to where he is . Sheelah he grew up in new jersey, his father was a medical doctor. Both he d his brother, vinny, re these incredibly accomplished students. Apparently there parents were typical tiger parents, wanted them to have straight as and sacrificed a lot to their children could go to these schools. He had a strong sense of right and wrong. He was in debate, he enjoyed standing up and arguing and developing ideas and performing. He ended up going to i have to double check. He ended up going onto columbia or harvard. Brian i think columbia law school. Sheelah there are a lot of ivy league graduates of my book so sometimes i confuse him. Then he worked for chuck schumer. Schumer is the one who recommended him for the job he has now which is u. S. Attorney for the Southern District job. One of the most high profile jobs in Law Enforcement. New york city has many of the most highprofile cases, terrorism cases, narcotics cases, complicated Financial Crime cases, and he was told President Trump want him to stay on in the role which surprised some people, because he was an obama appointee. Brian you talk about Insider Trading and i kind of learned from you that it is not that clear sometimes what Insider Trading is. Sheelah yeah, so i could i mean, there is an easy way to explain it, which is by winning the title of the book. Black edge. So, there were some employees at steve cohens firm. They described different type of information. There was white edge, which was considered to be information that was publicly available, that anyone could get, like companies, public sec filings, companies, when they reported earnings, they have to make filings at the Securities Exchange commission. Everyone has access to it. It is not very valuable for a trader because everyone has it. Presumably, there is the money to be made from trading based on this. Edge. Here is gray that ision sort of ambiguous. And an analyst might call an employee of a company and say you announced the merger. When is the merger going to close . You have announced this big investment that is happening. When is this going to happen . Brian would that have been you . Sheelah i did some of it, exactly. The person may or may not be authorized to tell you the information, so it depends of your relationship with the person, if you are a very important investor, they might say well, we are feeling good about it. So then you go back to your desk and you think, ok, was that material nonpublic information i am not supposed to trade on or was that just, you know, no big deal . Hedge funds are supposed to have compliance officers and counsel to help advise you if you end up in this situation. A lot of the time, the information these analyst are getting is in this gray zone, so brian one way to describe it, they do not have the kind of rules you do if you went to a Vanguard Fund or Something Like that. I mean, they are not as regulated as some of the other funds are . Sheelah that is absolutely true. They do not have to disclose as much about brian the benefit to rich people . Sheelah some people believe that. A Hedge Fund Manager would say, a lot of hedge funds take money from pensions funds managers, so they would say that some of their investors through these pension funds, which will put tons of money with different hedge funds sometimes, they would say, we are managing money for teachers in california. You know, as a group, so it is not only rich people who benefit from us, but for the most part, they cater to rich people. That is correct. Brian we talk about steve cohen making 10 billion and whatever it is. He has not been charged with anything. He needs to have the edge, as you say, he needs to know information other people do not know . Sheelah anyone involved in hedge funds involved in shortterm trading, meaning every day, they are trading in and out of stock, all those people on edge. That is a common term in the industry. They want edge and you know, there is the white edge that is useless for their purposes, the gray zone, and then there is black edge, which is inside information. Brian i want to go back to matt. The dr. Sidney gilman story, prior to that you tell the story about matt martoma flying to ann arbor to gather more information about the alzheimers drugs but at the same time, he is phony about it. He tells the dr. He is coming for another reason. Gilman over months, dr. This martoma. Starts to see martoma like a son. He knows he is not supposed to be sharing confidential information about the alzheimers drug, but over time, he starts to share it because m artoma is pushing and pushing. Gilman starts sharing information he is not supposed to be sharing. Meanwhile, martoma is working for steve cohen. Hes advocating very hard for them to invest very heavily in elon and wyatt. Brian if he comes in to him and says we have got to short this because this is not going to work, is the issue at that moment, does he tell him that he has gotten this from dr. Gilman . Sheelah there is mystery at the center of it because ultimately what happened, after advocating for months to aggressively invest in these two companies on the basis of this trial, you know, martoma there were other people at sac against the idea because they did not think the drug trial was going to work out. There was arguing and no one could understand why martoma was so confident. And at onellyrd,ei point, one of martomas colleagues said he is acting like he has black edge. There is all the fighting and mystery surrounding it, so it seems fishy, right . So the government alleges fishy, right . So the government alleges airplane tickets, phone records, documentary evidence, that, you know, that we before the trial was publicly announced in chicago, that martoma flew to the university of michigan to visit dr. Gilman, visited dr. Gilmans office, looked at the presentation dr. Gilman was working on, that had all the drug trials in it, confidential information. Martoma is alleged to have looked at the presentation, this is under lock and key. And then come on sunday morning, the following day, there is a phone call with steve cohen. At martomas trial, the government presented some of the evidence. He sent an email to steve cohen sunday morning. They talk on the phone and no one knows what they said. And then, immediately afterwards, mr. Cohen starts instructing his traders to sell off their shares and they spend the next week sort of liquidating their whole position, quietly, and it is important to note that there are many reasons why you do that quietly. I mean, if people hear that steve cohen is dumping triggerit can something. Brian the u. S. Attorney Southern District of new york pointed by which president . President obama. Would you say, by the way, those positions often lead to running for attorney general, governors, senators . Sheelah preet in particular is seen as someone who haa loolitical ambition. So yes, yeah. Brian hired a pr group to come in and more so than normal . Sheelah he in particular was seen as being very sensitive to the press coverage. Brian we are talking about matt martoma, now in prison. As the criminal complaint in this case alleges, by corrupting and cultivating a doctor with access to secret drug data, former Portfolio Manager Matthew Martoma this is the most lucrative insidertrading scheme ever charged, allegedly resulting in an illegal windfall to the hedge fund of more than a quarter of a billion dollars and that is billion with a b. Brian did he become a. . Sheelah he became the star witness. Againstovernment case martoma. Brian how big of a case was this . Sheelah this was a very significant case. This was 275 million profit, so that made it just monetarily, i think, the biggest insidertrading case ever and bria h did they initially figure out that this was an insidertrading case . You have got the securities and exchange commission. Is that an independent group in washington, independent of the president . Sheelah it is a Regulatory Agency and there are commissioners who oversee the sec and a chair who is normally appointed by the president , so often, the sec is independent. However, it relies on congress for its funding and budgets and it will reflect the political views of the chairman. Brian and the recent chairman . Sheelah the outgoing chairman is Mary Jo White brian who used to be the u. S. Attorney in the Southern District of new york. Sheelah i have to say a lot of the activity thats, you know, i cover in this book, the swirling, rampant, Insider Trading, a lot of it to place in took place in the years leading up to the financial crisis, when the sec was managed for at least some of the time by people who did not really believe in regulation, you know, and there was a sense the market could regulate itself. A deregulatory time, a lot of this during the george bush era. At the end of it, we ended up with a huge mortgage fraud crisis and insidertrading crisis. Brian the commissioners are appointed by the congress had approved by the senate. Down the street is the fbi. Sheelah yes, so they are independent, and very different. The sec, there are all different divisions. There is the Enforcement Division and they are there to enforce security laws, and they are often doing the very painstaking, difficult work of looking at suspicious trades, so if something happens in the market, for example, you know, one day, there is an announcement that aol and time warner are merging. Ok, theyre merging. And timeat the paper warner shares were up by 20 yesterday before the news came out. It looks a somebody knew something. That might get flagged by the sec. Another agency might send a says, youper that. D look into somebody obviously knew, loaded up on shares of time warner right before the news came out. Ok. Then they start to send a subpoena is and they will get trading records, phone records, and they are doing painstaking work of analyzing all these documents and try to figure out if something happened that should not have happened. It can take months. I mean, the martoma case took years to kind of build. Put it together. Brian there is story about harvard and stanford and clerkships. What is the story . We are beating up on him but there are lots of other people in here. This story might be useful. Sheelah i will back into the story by saying that during matt martomas trial, they are enraged and on the cover of the business section, there was this headline to the effect that Matthew Martoma falsified transcripts. Harvard law from school. His lawyers were very concerned that members of the jury who were supposed to kind of be impartial and neutral might see this, so the story behind the story is that, you know, martoma was a very ambitious student. He went to duke, he then gained admission to harvard law school. Incredible accomplishment. After his first year, he starts struggling a little bit, surrounded by these very ambitious students and everyone is getting incredible clerkships preparing for and competing fornd coveted summer jobs and martoma did not feel that his grades were quite enough to get him one of these clerkshipositions at he really wanted. Brian he got some bs, is what youre saying. Sheelah so he is alleged by harvard to have doctored his transcripts and apply for the clerkship and someone noticed something was off. And harvard, like all schools, they are very sensitive to scandals like this, so they conducted an investigation and concluded that martoma had falsified transcripts and lied about it to try to cover it up and they were very unhappy and voted to expel him. He fought very hard in trying to convince them not to and try to tell them he had tried to fix the problem. He had apologized, all this stuff. They did not accept it, so he was pushed out. He continued to fight, you know, to fight to be reinstituted into the program, but they did not go for it. Brian we all have a whole we do not have a lot of time left. I want to go to page 293 in your book and you will see the purpose of this. It is a whole page about cohens exwife patricia and that relationship, but it gets down to, meanwhile, the prosecutors and regulators involved in the billing case against cohen and sac have moved on to more lucrative careers. Is,purpose of asking this what should we think of this . Lauren eisner, the head of the Criminal Division that helped paul weiss helped with the team. Helpede law firm that with cohens defensesheelah thm there. Brian the prosecutor who tried the steinberg case is one of those you write about, left the government for a partnership as milbank, tweed, hadley, mccloy. Richards able and as he was taking a job as general counsel or a Hedge Fund Called elliott management. Theres more, but. Sheelah a lot of people would look at that, and say that is the revolving door and that is a big part of the problem that we have in washington, which is that there are people going from the Public Sector to the private sector and sort of cashing in on their time in the Public Sector and they are not , and then when they are doing their job prosecutors and regulators they are not doing their jobs to set they are trying up a future highpaying job in the private sector, and it looks brian let me read some more because it keeps going. After 25 years at the fbi, bj kangs former supervisor joined Goldman Sachs as a Vice President in the compliance crew. You continue, arol devlinbrown became a partner at the law firm. The most daring move of all came from amelia, a senior enforcement attorney at the sec who oversaw the agency martoma investigation. At the end of june, 2015, she shocked her colleagues by announcing she was joining the firm should we worry about this . Sheelah i think it raises questions. Now, i feel like i need to point out that for these people i think it seems entirely normal to people in the Legal Profession to do this. They put in a few years working for the government, making a lot less money than they could be making working at white shoe law firms, and then it is time to move on and maybe they want to make more money and it is time to send their kids to private scho and it seems very normal for tm toistribute privatet a job in the sector for millions of dollars potentially. Many of them some are making 5 million per year, so brian well, they were. Sheelah they are still respectable salaries, but because youre living in new york city, surrounded by all fancy wall street people all the time, it does not seem like a lot of money. It does not go that far. They have the fancy Ivy League Law applications and they could make a lot more money than that and government work is very exhausting, too. It takes a huge toll. Brian you write it is almost impossible to prosecute corporate criminals who operates at the highest levels. Sheelah so this is where i think the story is actually really important from a policy perspective, because here we are no Senior Executives were charged with crimes related to the financial crisis. No one went to jail for that of any relevance. You can say thing about the Insider Trading stuff. The Hedge Fund Manager did go to jail but they did not get a lot of people and now, we have this new era in washington where we have a lot of wall street financiers and President Trumps cabinet and his main message to wall street so far is that he is going to cut taxes and gut financial regulation, so i think it is an area of concern. I think people need to think about it and i think this is an important reminder of why intelligent regulation is really important, why it is important to prosecute fraud and crime in the whitecollar world and you know, if you do not do that, you end up with a system that is favoring the extremely wealthy and wellconneed leaving everyone else outside and it is not a fair, transparent system. Brian Michael Steinberg, the perp walk the whole idea of being arrested by the fbi, how did he do this . By the way, where is he today . Sheelah his conviction was overturned, so he is a free man and brian is he trading . Sheelah i actually do not know. He was looking into alternate careers last i heard. He is very wealthy, so he can do a lot of different things. You know brian how did the arrest go by . Sheelah the fbi was arresting a lot of people during the period brian and he worked for sac . Sheelah he was working at the time he had been arrested. And the fbi really made a point often, these Hedge Fund Defendants who have very highpriced, smart lawyers, they would say, you know, they would kind of know they were possibly going to be arrested and they would call up the prosecutors and say, well, can we just come in voluntarily . And the fbi was very adamant that they did not want to treat these Hedge Fund Defendants any differently from a drug dealer or petty criminal, because those people do not have the luxury of having their whitecollar lawyer call up and walk them in in a civilized fashion, so the fbi kind of made a point of busting in the doors of these Hedge Fund Guys and there is a sort of very tense scene in the book where Michael Steinberg knows, is tipped off hes going to be arrested, and he returns to manhattan from the Family Vacation in florida, and he gets dressed and at 5 00 in the morning, he is sitting in his park avenue apartment with his attorney and just waits because he knows they are coming. And sure enough, right on cue, bang, bang, bang fbi. And they came in and arrested him. Brian where did they take him . Sheelah central processing, a building in lower manhattan. He gets fingerprinted and arraigned. Him. Handcuffed there was a wall street journal reporter who had been tipped off about the arrest and she stood on the street and videotaped it with her phone, and that video got played on the internet, so it was very humiliating for him, and considering the fact that his conviction was later overturned, you can understand why he would be very upset about this. Brian how long have you worked for the new yorker . Sheelah since july. Right before that, i was a writer at bloomberg businessweek. Brian when you look at this book, what were the important moments for you or people or devices for you to be able to write this book . Sheelah interesting question. Well, personally, i found it fascinating to get to kind of go inside an investigation like this. I have never become so deeply enmeshed in an fbi, sec criminal prosecution the way i was able to in th book. I saw the whole process and all its flaws. Brian were you there with bj kang when he was listening to the phone calls . Sheelah no, but i was able to relive it all through my reporting. Brian how close did you get to the whole story . Did people let you in behind the scene . Sheelah you will have to read the book and judge yourself. It felt like that to me. Brian let us go back to the question. What was the, you know, who shined the light the most from your standpoint or who was the best character in the book . I hate to use that term, but who was the hero for you . As the public looks at it, who should they say, that is who i trust. Guest that is an interesting question, tough one. [laughter] sheelah i dont know if i would boil it down to a matter of heroes or not. I think everyone, even the people you would typically think of as may be the heroes, like the fbi agents, were flawed. They did some things wrong. They certainly, you know, they were overaggressive at different points. You could say. Some peoples lives got completely wrecked kind of for nothing at the end. For some reason i feel the investigators, they are the unsung heroes. They do not usually get a lot of public glory and they are doing a lot of difficult work of just regulating and moderating the Securities Markets and we live in a world where everyone has money in the stock market. We all have retirement money in the stock market, so brian these hedge funds affect the average person investing in the stock market . Sheelah they absolutely do. Because we are all in there, our futures are tied up in the stock market and increasingly, we have two big markets. We have the market for the wealthy, wellconnected, sophisticated investors like hedge fund traders, and the one for everyone else. Brian one personal question before we are out of time. Are you married . Sheelah yes. Brian do you have a family, kids . Sheelah yes, yes. Can i ask why you are asking this . Brian i always ask these questions. Sheelah ask me again, then. Nine and five. No one has ever asked me that before. Im, yeah brian i dont want to know any more. I dont want to know where you live or anything like that. Sheelah no one has ever asked me about them during an interview. That is fine. Brian the name of the book is black edge. On the cover is a shark wrapped in money. What is that from . Sheelah it is inspired by a sculpture that cohen is famous for owning. A sculpture of a shark suspended in formaldehyde, he paid it by an dollars for it. Brian inside information dirty money and the quest to bring down the most wanted man on wall street. Thank you. Sheelah thanks. 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