SAC gets cut by 'edge', a word Cohen hated

Thu Jul 25, 2013 7:46pm EDT
 
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By Lauren Tara LaCapra, Matthew Goldstein and Emily Flitter

NEW YORK (Reuters) - Until recently, having an "edge" was a coveted trait on Wall Street. After the federal indictment on Thursday of billionaire investor Steven A. Cohen's hedge fund for insider trading, it is becoming a four-letter word.

In painting a picture of a cutthroat culture at SAC Capital Advisors LP, U.S. prosecutors used the word "edge" 14 times to describe the way traders and analysts allegedly went to great lengths to obtain inside information and insights that no one else on Wall Street had about publicly traded companies.

In one particularly rueful battle between competing portfolio managers at SAC, the indictment talks about two underperformers jealously questioning whether a third really had the "black edge" - parlance for inside information.

The Department of Justice's rare move to indict an entire organization instead of a few individuals could sound the death knell for one of Wall Street's most successful hedge funds and end Cohen's career of managing outside money.

But other fund managers and a Wall Street historian said it could have far-reaching effects beyond SAC, and may change how hedge funds do business forever — especially funds that rely on getting an information to buy and sell stocks.

"This truly is the end of an era in that the days where a manager could say ‘give me your money and trust me' are gone," said Peter Rup, chief investment officer at Aretmis Wealth Advisors.

Charles Geisst, a financial historian and professor at Manhattan College, said the indictment was "a very big deal, as big as Arthur Andersen or Drexel," referring to the accounting firm and the investment bank that went out of business after being indicted.

"This is going to be a nail in the coffin of hedge funds, whose glittery, glossy reputation is starting to slowly erode," Geisst said. "Hedge fund guys were viewed as smarter than everyone else, but now it doesn't seem like they were performing smarter analysis; it seems like they were just getting access to inside information."   Continued...