Books of Interest
Website: chetyarbrough.blog
Black Edge (Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wallstreet)
Author: Sheelah Kohatkar
Narration by: Kaleo Griffith

Sheelah Kohatkar (Author, staff writer for the New Yorker.)
“Black Edge” is about insider information that will give an advantage to a stock market’ investor. There is an elusive line crossed when an investor solicits information from an informed source that is not available to all investors. The line seems blurred by how the question is asked and whether the information given is available to everyone that is interested. Because the solicitation of information is not publicly provided information, the law defines it as illegal advantage to a singular investor rather than the general public. What makes this difficult to grasp is a diligent investor might do more research than the general public before investing in a stock. Is diligence a crime? Who is the criminal–the investor, the person who reveals proprietary company information, or the information pursuer? “Black Edge” implies all three are guilty but only one is criminally chargeable.
Steven A. Cohen (Former owner of SAC Capital.)

Sheelah Kohatkar researches the rise of Steven A. Cohen and SAC Capital to explain how complicated and difficult it is to prosecute an investor or his/her company for insider trading based on “Black Edge” information. One might argue Steven Cohen simply created an investment company focused on researching possible stock investments or sales based on the best information that can be found by diligent research on a company’s activities. Cohen gambled on that information by making large investments short sales or divestments of a subject company’s stock. SAC Capital became extraordinarily successful in buying, shorting, or selling publicly held stock based on that research. Kohatkar shows how those actions became criminal because of employee’ researchers that fed information to SAC Capital that is not readily available to the public. This became a violation of the law because Cohen’s company bet on what is classified as “insider information” found by SAC employees. Of course, that information may have been acquired by any investor who is willing to create an organization designed to research a target companies’ product before making a decision to invest in, short, or sell its stock.

SAC Capital is fined $1.8 billion dollars and is dismantled when found guilty of insider trading.
Cohen is never found personally guilty of insider trading, but SAC Capital is fined $1.8 billion dollars and is dismantled as part of a plea. The firm is found guilty with Cohen forbidden the right to manage outside money for two years with a payment of a $90 million dollar penalty. After expiration of the ban, he starts a new company, Point72 Asset Management, that manages billions of dollars for himself and his investors.
Cohen is never imprisoned for his investment activities but two of his employees were found guilty, fined, and imprisoned.

Cohen is never imprisoned for his investment activities but some of his employees were found guilty, imprisoned, and taken from their families. Cohen insulated himself from researchers in his firm and avoided direct communication with publicly held’ companies in which he chose to invest, short, or sell stock in. Cohen paid a penalty but served no time in prison for insider trading. In contrast, people he employed to get insider information went to prison, were fined, and endured family hardship caused by that imprisonment.

Kafka’s hell exists in today’s world just as it did when it was published in 1925.
Cohen’s attorneys manage to show prosecutors that he never knowingly participated in the collection of insider information. However, Mathew Martoma and Michael Steinberg, two of Cohen’s employees, were convicted because they were proven to have directly obtained non-public information, traded on it and personally profited from insider information. These two employees gathered (from personal conversations and private reports of publicly held companies) information not available to the general public. Their personal trades on non-public information made them guilty of “insider information” crime. In contrast, Cohen is not criminally prosecuted because he could not be affirmatively proven to have instructed his employees to gather insider information. Cohen is found to have failed to supervise his employees but that is only a civil, not criminal act.
This is a troubling history. “Black Edge” shows that an investment company’s structure can be set up to pressure employees to break the law without being held criminally liable for the use of insider information.

Even though an owner creates a company designed to solicit insider information, they shield themselves from criminal liability. The employees who actually gather insider information are guilty but the owner of a company who profits from their work is not guilty of the same crime. A company and its employees can be convicted for insider trading and be sentenced to prison but a company’ owner may walk away with a fine and no criminal penalty or prison time. As Lord Acton noted in 1887, “Power tends to corrupt, and absolute power corrupts absolutely”.

























































