'Black Edge' Recounts The Biggest Insider-Trading Scandal In History

DAVE DAVIES, HOST: This is FRESH AIR. I'm Dave Davies in for Terry Gross, who's off this week visiting family. Remember when you made your first 10 million? It's a ridiculous question for most of us, but to the most successful Wall Street hedge fund managers that's just not a lot of money. Our guest, Sheelah Kolhatkar, writes that in 2006, the lowest-paid person on the list of the top 25 earning hedge fund managers made $240 million just that year. One of the top earners was Steven A. Cohen, whose firm was at the center of a massive insider trading scandal Kolhatkar writes about in a new book.

It's a story of a hedge fund managers spreading cash around to get information and government investigators running wiretaps and leaning on traders to help them crack down on what they suspect is widespread cheating in the financial sector. And it's a story of inequality in financial markets and the economy and what that means for the country.

Sheelah Kolhatkar is a staff writer at The New Yorker, where she covers Wall Street, Silicon Valley and politics. Her writings also appeared in Bloomsberg (ph) BusinessWeek, New York, the Atlantic and The New York Times. Her new book is "Black Edge: Inside Information, Dirty Money, And The Quest To Bring Down The Most Wanted Man On Wall Street."

Well, Sheelah Kolhatkar, welcome to FRESH AIR. First, tell us about this guy, Steve Cohen. What made him distinctive and unique?

SHEELAH KOLHATKAR: Well, Steve Cohen is a legendary figure on Wall Street, largely for his prowess as a trader. So he made billions of dollars, one of the largest fortunes in the United States, almost completely on the basis of his ability to sort of sit in his chair, look at the market screens and trade based on his gut and what he saw was going on. And, you know, he has the lifestyle to reflect all that. He lives in a 36,000-square-foot house in Greenwich, Conn. There's an ice rink and a Zamboni for the ice rink. He decorates his office and his home with artwork of the sort you'd expect to see in the Museum of Modern Art.

And, you know, he really has a sort of rags-to-riches story that people in the financial world love. He grew up very middle-class in Long Island. They were certainly not poor, but they were not wealthy. And I think that growing up, he was surrounded by a lot of affluence in Great Neck. And he was motivated early on to make money. He was a very, very talented poker player in high school. And then he went off to Wharton, studied business there. And then he launched his hedge fund, SAC Capital, in 1992 with $25 million and very quickly achieved enormous success.

DAVIES: There are a lot of jobs in the financial sector, and it's confusing to people. There are bond traders and stock traders and people who are in - work for investment banks and private equity people. Steve Cohen made his fortune with a hedge fund. What is a hedge fund?

KOLHATKAR: Hedge funds were originally conceived as these very sort of bespoke products that catered to wealthy investors. So if you were a very rich person, you know, a CEO of a company, you had a vast fortune, you were trying to figure out how to manage all that money, you might have parked a slice of it in a hedge fund where the idea was that it would be sort of protected from the general swings of the market. So you would be paying very high fees to a hedge fund manager, and in exchange you were granting that person flexibility to sort of invest the money however they saw fit.

And because hedge funds only accepted money from very wealthy and sophisticated investors, they were given a longer leash by the regulators to take risks in the market. They were allowed to borrow money to invest at much higher levels than a regular mutual fund, for example. They were allowed to short stocks, which is essentially borrowing a stock and selling it and betting that it will go down. It's actually a very high-risk activity. Not everyone does this. But hedge funds, because they were only taking money from investors who could afford to lose the money, they were given this extra freedom. And in exchange, they charged very high fees.

And, you know, over time they came to really dominate the financial market. They were so successful and made so many people so wealthy that they have become this very dominant force. And in fact, what they do affects everyone.

DAVIES: Right. So what was originally these kinds of companies that would - you'd park some of the money as a hedge against a market downturn - became a huge thing in and of itself. And they're just - they're traders. They trade in everything and get big returns and charge fees for it. You write that when it was at its height, when it was - you know, had - what? - $15 billion that it was managing, his own money and other people's money, that there was a feeling in the business on Wall Street that these guys had to be cheating, using inside information to beat the market. Why did people think that?

KOLHATKAR: Well, right from the first moment that Steve Cohen was operating his funds - so he started in 1992 with $25 million - he was generating these enormous returns - 30, 50, 70, 100 percent a year. And that went on and on. And by the time I became interested in this story, SAC Capital had grown into this enormous success on Wall Street, had made many people very wealthy. But they had only had one year when they lost money, which was 2008.

So people did start to wonder - how is it possible that a fund of this size had never lost money aside from this one year, 2008, which was, as you recall, the financial crisis and really was just sort of a disaster in the market? So, you know, questions and rumors circulated around this firm for years, even though many of Steve Cohen's peers admired him and tried to emulate him.

And, you know, a lightbulb really went on for me when it became clear that the FBI was looking very closely at him. There had been this huge sort of crackdown on insider trading going on for several years. But at one point in November of 2012, a prominent former portfolio manager who worked for Steve Cohen was arrested. And for me as a reporter, that's when something sort of clicked and I thought, oh, my goodness, the government is about to go after one of the most powerful men on Wall Street.

DAVIES: So people thought that they were engaged in insider trading. For those who don't know, what does that mean?

KOLHATKAR: Well, a very good way to explain it is to sort of explain the title of this book, which is "Black Edge." So you need to understand that Wall Street and hedge funds in particular are driven on information. And when you're out there in the market, trying to make money every day, trading stocks, buying and selling things, the better information you have, the more money you're going to make. And the incentives for having good information are very high. You can make many millions of dollars if you have good information.

So the term that they use on Wall Street for this is edge. They say, you know, what's your edge, which means what is the little piece of information, the piece of intelligence you have that is going to allow you to make money trading? And within SAC Capital, there was a system for classifying information. And a manager at Steve Cohen's firm - and I sort of tell this story in the book - he designed a system to help teach the younger guys working for him what the differences were between different types of information.

There was white edge, which was essentially very readily available legal information that anyone could get - a company's public SEC filings, for example. Anyone could look at those online. There was gray edge, which was in between. It was perhaps something you'd heard from an executive working at a company, but it wasn't totally clear what they meant. It was sort of in this gray zone, and you weren't necessarily sure it might be helpful. And then there was black edge, which was clearly inside information. It was material non-public information that was likely to move the stock.

And one of the things this manager used to tell some of Cohen's employees was, you know, stay away from black edge because you don't want to end up in jail. I mean, that is the stuff that's going to get you in trouble.

DAVIES: You tell this book in part through the experiences of the FBI investigators and other government investigators. And you describe how when they started listening to conversations of people in hedge funds and traders and they talked so casually about trading this illegal inside information, it made them wonder - does everybody do this? Is this just the way it is? You worked in a hedge fund early in your career. Did it seem that way to you?

KOLHATKAR: Well, I should start by saying that I worked at a less ambitious hedge fund than...

DAVIES: OK.

KOLHATKAR: ...(Laughter) SAC Capital. But yeah - in fact, at the time, you end up in these jobs and whatever's going on around you just seems normal, and you don't even necessarily know to question it. And it was only later, looking back on what I had done earlier in my career as a hedge fund analyst that I realized sort of what it was. I was trying to get edge, too. I spent my days trying to sort of analyze our different investments and get information about them. I certainly didn't venture into any areas that would've qualified as black edge, for example, but I didn't really know the difference. And it was generally understood that you wanted to get the best intelligence that you could. It's true that the FBI really was a bit oblivious to a lot of this.

The FBI securities unit, which is responsible for policing the market, among other things - if you walk into their office in lower Manhattan, the stark contrast between the FBI and their resources and what the hedge funds have at their disposal is very obvious. I mean, FBI is working out of a ratty office. The walls are sort of drab. They have ancient computers. There are guys sitting in there on headphones listening to, you know, wiretapped calls.

If you walk into one of the best hedge funds in the world, one of the most successful funds like SAC, everything is state-of-the-art. It is filled with spectacular artwork, the best technology you can possibly buy. They are spending money on, you know, hiring people to watch truck traffic in and out of manufacturing facilities in China. They're studying satellite imagery of parking lots in Wal-Marts across America because they are trying to piece together the health of various companies that they're investing in. And they are willing to spend money to gain any type of advantage or to take advantage of any resource possibly available. I mean, they literally will hire people to install their own fiber optic cables so their trades can be executed faster.

So the FBI, when they started looking at this in the mid-2000s, they really were a little clueless. I mean, they had spent the last few years focused on small kind of stock frauds. You know, the kinds of things you might've seen in "The Wolf Of Wall Street." You know, like, little offices on Long Island, strip malls where people were calling dentists out of a phone book and trying to sell them stocks. And these were small scams. And they would just sort of shut them down and then new ones would open.

One day, one of the FBI supervisors sort of came in and said to one of his best agents - B.J. Kang, who's a character in my book - he said, listen, hedge funds are huge. There's a lot of money in these things, and we have no idea what is going on. We need to get on this. It was a bit of a wild West environment. You know, they started investigating and it started to seem like there was sort of rampant crime going on at this time. And not coincidentally, this was the period leading up to the financial crisis. I mean, I think there were a lot of things going on in the financial world that were not legal, not ethical.

And they decided that they were going to try and approach the hedge fund industry the way they had the mob. So they were going to use wiretaps. They were going to use informants. And they were going to approach it like organized crime. And that's what they did.

DAVIES: I want to come back to something you said a moment ago. I read this in the book, and it fascinated me. These hedge funds had enormous resources for research, but what would they learn from looking at satellite photos of a Wal-Mart parking lot?

KOLHATKAR: So they're trying to do everything they possibly can to gain a picture of what a company like Wal-Mart is going to announce when it releases its earnings about how much money they made, what their expenses were, what they expect in the future. And investors pay very close attention to these earnings announcements because that's a big hint about how well this company's doing and whether or not you should be investing your hard-earned retirement money buying shares of this company.

So tremendous resources are spent trying to kind of figure out through various means, through white, gray and black edge methods, you know, what the earnings are going to be. And one way you can try and figure that out is by studying over time the busyness of the parking lot.

So if Wal-Mart's parking lot is just packed every single day, that is going to be a very strong indicator to you that their earnings are going to be very strong. If the parking lot is empty, you might decide to be more cautious. You might sell some of your Wal-Mart shares. So these are the kinds of things that the biggest and most successful hedge funds have available to them.

DAVIES: Wow. Sheelah Kolhatkar's book is called "Black Edge." We'll continue our conversation in just a moment. This is FRESH AIR.

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DAVIES: This is FRESH AIR. We're speaking with Sheelah Kolhatkar. She is a staff writer for The New Yorker and has been reporting on the business world for many years. Her new book is "Black Edge: Inside Information, Dirty Money, And The Quest To Bring Down The Most Wanted Man On Wall Street."

So everybody in Wall Street wants an edge. They want information. Some of it's public. Some of it you get in conversations in bars. But one of the things you write about is this type of business arose - networking firms that would let investors and traders talk with experts in certain fields, you know, medical research or technology. Tell us what this is about and why it's tricky.

KOLHATKAR: So this is another thing that was going on for years before regulators, law enforcement, even the general public had a clue about it. You know, some clever entrepreneurs figured out that hedge fund investors were very hungry for information about different industries. So if you're a hedge fund trader or an analyst, you might come into work one morning and your boss, the powerful, you know, portfolio manager at your hedge fund might say, hey, I want you look at, you know, XYZ's stock. They make microchips. Figure out if we should buy some.

OK, well, you don't know much about microchip manufacturing. This is a new subject for you. So you've got to figure it out really quickly. You've got to do a little bit of what a journalist might do. You've got to start calling people and reading things to educate yourself about this business and to try and figure out if this particular company is healthy, is going to do well, if you should risk some of your investor's money buying shares of this company.

So expert network firms rose up to kind of meet this demand. They realized that these hedge fund traders had a lot of money to spend on research and they had a constant, rapacious need for information and intelligence about all sorts of different companies in different industries. A lot of them tended to be in the medical pharmaceutical field and also in technology because both of those area's stocks tend to move very dramatically based on the news and the earnings. The - you know, the businesses themselves are very complicated. The products are complicated. It's hard to understand if you're not an expertise, you're not a medical doctor.

So these expert network firms rose up and they kind of peddled themselves to hedge funds and they said, listen, for $1,000 an hour, we will connect you with a middle manager at Caterpillar who can talk to you about, you know, how they manufacture their big farm machines and, you know, how things are going and what kind of parts they need and where they buy them. And so you could call these experts and, you know, quite legitimately just educate yourself about these different industries and companies.

DAVIES: You're getting people who are players in the business world and they're on the phone getting $1,000 an hour and, in theory, not divulging insider information. But as relationships develop given the amount of money they're being paid, this seems to invite insider trading, doesn't it? I couldn't believe it when I read about this years ago.

KOLHATKAR: A number of people have said to me, how is that possibly legal? And, you know, from the outside, of course, it sounds like it's going to lead to a lot of illegality. And in fact, that is what the FBI thought when they first learned about this as well. BJ Kang, who was one of the star FBI agents who worked on this case, you know, he kind of said to himself at one point, how is it possible that hedge funds are going to spend all this money on these experts and these consultants if they're not getting anything valuable?

If they're just getting white edge, you know, information that anyone could get, it's not worth the money to them. That kind of information is sort of known by everyone in the market. You're not going to make, you know, really good, easy money on that information. So it seemed - from the FBI's perspective, it seemed really logical that something, you know, possibly illegal was going on through these expert networks. And, of course, the expert networking firms, you know, they did tell everyone that they were not supposed to divulge material nonpublic information.

People who worked at companies were not supposed to reveal information that they were supposed to keep secret. And everyone was told that. But in many cases, it was not really being monitored or policed. And the FBI would notice certain patterns, you know, certain expert consultants were in high, high demand. You know, the hedge funds would fight over who could talk to a particular consultant first because if you were the first one on the phone with that person, you could make the trade before the other hedge fund clients got the information.

So, you know, just by looking at that from the outside, BJ Kang was able to say, well, listen, something's going on. And he really, you know, they targeted a lot of their resources into looking into these expert firms.

DAVIES: OK, now, there's a scientist who's at the heart of this story, Sidney Gilman. He was one of these guys who got paid for talking to hedge fund people, giving them information. Tell us about Sidney Gilman.

KOLHATKAR: Well, Dr. Sid Gilman was one of the most accomplished, prominent Alzheimer's researchers in the world. He had an endowed chair at the University of Michigan. He had devoted his life to trying to solve Alzheimer's, to find a cure. And, you know, and he was a common speaker at medical conferences, he wrote articles for journals, he mentored young scientists and students and, you know, just sort of a national treasure. And one day someone approached him and said, hey, you know, you know a lot about Alzheimer's disease and drug development in that area.

Why don't you make a couple extra bucks as a consultant? You know, these hedge fund guys would love to talk to you. And he, for whatever reason, decided that this was sort of appealing. It was easy money, frankly. And, you know, he started doing these consultations with hedge fund traders. And I think the traders, you know, they were often very, very laser focused on the kind of intelligence they wanted. You know, they were all trying to figure out the outcome of a drug trial or, you know, whether a particular product in the Alzheimer's area or even some other diseases that Dr. Gilman, you know, knew a lot about like Parkinson's disease, you know, they're all trying to make bets on these various things.

So they would, you know, over time, become very good at flattering him and trying to get information out of him that was going to be helpful to them. And, of course, he had been told you cannot share anything that's confidential with these people. But, you know, over dozens of conversations where they become sort of friendly and they, you know, they have dinner together, these lines start to blur and, yeah.

DAVIES: Sheelah Kolhatkar's book is called "Black Edge." After a break, she'll tell us about the massive insider trading scandal at Cohen's firm and who paid what price for the cheating. Also, David Bianculli reviews the new FX series "Legion." I'm Dave Davies, and this is FRESH AIR.

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DAVIES: This is FRESH AIR. I'm Dave Davies in for Terry Gross, who's off this week visiting family. We're speaking with New Yorker staff writer Sheelah Kolhatkar, whose new book "Black Edge" is about one of the biggest insider trading scandals in the history of Wall Street. When we left off, she was talking about a scientist involved with testing an experimental drug to treat Alzheimer's and his side work providing information about the pharmaceutical industry to researchers from hedge funds.

There was a company called Elan which was developing a promising new Alzheimer's drug, and the big question in the market was will this work? And if it does, Elan will become a very, very valuable stock. And you write about a guy from SAC Capital, Mathew Martoma, who develops a close relationship with Dr. Sid Gilman. What happens?

KOLHATKAR: So Mathew Martoma was a very accomplished hire at Steve Cohen's firm as they see, and he had been to Duke and to Stanford Business School. And he had all the right pedigrees and internships and everything. And he arrives at SAC, and he's already tracking the development of this Alzheimer's drug that has tremendous commercial potential. Alzheimer's is a disease that affects millions of people. There is no cure. It's devastating. If some company figures out how to treat it or at least control the symptoms, they are going to make a lot of money, so these hedge-fund traders are trying to figure out, you know, how can we kind of bet on that?

And so Mathew Martoma starts tracking this drug trial. And Elan and Wyeth - two pharmaceutical companies - are together, you know, paying for this drug trial. It's very expensive to get a drug through the FDA process, and Martoma does what frankly many, many hedge-fund analysts were doing at the time. He starts calling these expert network consultants. He's trying to find somebody who knows something about this trial, and he ends up becoming connected to Dr. Gilman. And Dr. Gilman had a central role in the trial, in fact. He was helping lead the trial for Elan. He had worked on other Alzheimer's drug trials, and he had, you know, signed all sorts of confidentiality papers about his work with this trial.

But the fact is he knew everything that was going on during this drug trial before anyone else. And Martoma spent hours and hours cultivating him, meeting him for meals, talking to him about his family. Some of the SEC investigators who, you know, looked into this case described it as an intellectual seduction.

And Dr. Gilman had lost a son and had been just devastated by that. And it's unclear whether Martoma knew that, but it seems from the outside that Martoma was playing almost a surrogate son role to this elderly doctor who was a little isolated. And it was, you know - it was quite sad looking back on it. And over time, he persuaded Dr. Gilman to show him the final drug trial results before they were publicly announced, and this allowed Martoma to make an enormous profit at SAC Capital.

DAVIES: So this is incredibly valuable information, and this scientist breaks the law and lets this guy from SAC Capital know this days ahead of everybody else. And, of course, SAC Capital was holding a ton of this stock because Martoma thought this was going to be a breakthrough drug. Now, the news is bad. What did the company do with this information and how much did they make or avoid losing by getting this inside information?

KOLHATKAR: Well, so Martoma had been advocating very hard to load up and buy a lot of shares of Elan and Wyeth because he said, no, this drug trial is going to be a huge success. It's going to be a billion-dollar drug. So SAC had built up very, very large positions in the two stocks close to a billion dollars.

Now, inside SAC Capital, there was a lot of drama around this because there were other people at the firm who knew a lot about drug stocks and Alzheimer's disease. And those people did not understand why Martoma was so confident. So, you know, Martoma ended up sort of struggling with some of his colleagues. There was a lot of competition to kind of get Steve Cohen's ear and convince him over to their point of view. And the same manager who had kind of come up with this white, black and gray edge, you know - he had a group of traders who were demanding that Martoma explain why he was so sure.

And as far as we know, Martoma never really shared any of his information with those people, but they were just stumped because they had done their own research. And it really seemed to them like this drug trial might not work out. So they kept saying to Steve Cohen and to each other, you know, this is a huge risk for the firm. We could lose billions of dollars, you know, this is really dangerous. We shouldn't be doing this. They suggested they hedge the position which means they would have taken a position to kind of offset some of the losses if it didn't work out as they were expecting.

So we later learned through the prosecution of Mathew Martoma that, you know - he flew to Michigan and visited Dr. Gilman. After Dr. Gilman had received the final unblinded trial results, he is alleged to have looked at the report on Dr. Gilman's computer. And then according to the government, he flew back home to Connecticut. There was a phone call with Steve Cohen on a Sunday morning that lasted 20 minutes, and then on Monday morning, SAC started liquidating its position. There were just huge unequivocal sell, sell, sell orders going out.

DAVIES: And that was because the news was this drug was not going to pan out. The stock was not going to rise as they'd hoped.

KOLHATKAR: That's right. So, you know, a week in the future, there was a big medical conference scheduled where the results were supposed to be presented to the world publicly, and everyone who held shares of these drug companies was waiting with anticipation for these results to be announced.

It was a really big deal, and the scientific community was also very interested because, of course, you know, solving Alzheimer's disease would have been an enormous medical breakthrough. But everyone kind of agreed the potential losses were huge.

DAVIES: So how much did they make?

KOLHATKAR: So when the SEC - the Securities and Exchange Commission - calculates illegal profits, they include avoided losses in the profits, so they say, well, if you avoided losing X amount of money, and you also earned a certain amount of money, this is the total sort of illegal gain that you made. So the government alleged that SAC Steve Cohen's firm made a profit and avoided losses of $275 million. And their assertion was that, you know, after this sort of phone call, this Sunday morning, after all of these sales, SAC Capital then started shorting Elan and Wyeth shares which means they were betting against them.

They would make money if they went down, so the firm went from having basically a billion-dollar long position, meaning they had a billion dollars invested in the - sort of the rise of these shares to being short, being bet against them. And the total they're said to have made from that is $275 million, which, you know, made it the largest insider trading case we have ever seen in terms of actual profits.

DAVIES: Sheelah Kolhatkar's book is "Black Edge." We'll continue our conversation in just a moment. This is FRESH AIR.

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DAVIES: This is FRESH AIR, and we're speaking with Sheelah Kolhatkar. She is a staff writer for The New Yorker. Her new book is "Black Edge: Inside Information, Dirty Money, And The Quest To Bring Down The Most Wanted Man On Wall Street." You write about the criminal investigation of SAC Capital and others. And this is a fascinating read. I'm just going to tell listeners that, and we don't have the time to go through it here. But in the case of SAC Capital, this scientist, Dr. Gilman, agreed to testify that he had in fact given illegal inside information to somebody working for the company. That person made a phone call to Steve Cohen. They acted on - apparently on the information, made a fortune. There was a separate case involving an early information about a Dell computer earnings report. In that case, an email actually went to Mr. Cohen. Some dispute about whether he saw it, read it, what it meant. But government investigators from the FBI and the Securities Exchange Commission had a lot of information and took action against the company and many of the individuals. How did it shake out? Who pleaded guilty? Who was held accountable?

KOLHATKAR: Well, it was very dramatic, as you've already stated. I mean, they - the government, these are Securities Exchange Commission lawyers, FBI agents and criminal prosecutors mostly working in the southern district of New York in Lower Manhattan. They spent years building this case. You know, the FBI approached people on their lawns. You know, they tried to get Martoma to flip at one point. He fainted.

DAVIES: In his driveway.

KOLHATKAR: You know, they - in his driveway in Boca Raton, Fla. I mean, he literally passed out cold on the ground. And BJ Kang stood there sort of baffled. You know, they got people to flip. They built cooperators. They had wiretaps. They had a wiretap on Steve Cohen at one point. They tried very hard. And a tremendous amount of momentum built up suggesting that they were going to charge Cohen with something. In the interim they had charged or secured guilty pleas from several - at least eight - of his employees. And two in particular, Mathew Martoma and Michael Steinberg, were set to go to trial. They were fighting their charges. There were going to be these two high-profile trials. And the expectation within the government was one of these guys is going to do what's in his best interests and flip. And they were close enough to Cohen that they - you know, the government felt that there was a good chance that they would sort of get some evidence against Cohen himself. And that was their hope.

DAVIES: They needed direct firsthand information that Cohen had gotten inside information and acted on.

KOLHATKAR: Exactly. And they just didn't quite have the kind of hundred percent certain evidence that they would have liked. They did not have a witness who could stand up and get on the stand and say, you know, yes, I gave Steve Cohen inside information. He knew it was inside information, and he conspired to make this trade. They didn't have anyone who could testify to any of that. A lot of what they had was circumstantial. It was an email went to him, but they had no proof that he had read the email or acted on the email. And...

DAVIES: Even though he made a fortune from trades after these emails and calls occurred, it's not quite proof.

KOLHATKAR: It wasn't quite the smoking gun, the hundred percent certainty that they would have liked to have to present to a jury. Now, there were people who argued at the time that they could have gone to a jury with what they did have, which was this very kind of damning looking circumstantial case. You know, they had these enormous profits. They had this phone call between Martoma and Steve Cohen before all the drug stocks were sold off. They did not know what had occurred during that phone call. Martoma was not cooperating, and he wouldn't talk to them about it.

You know, they had this Dell email that had been forwarded to Steve Cohen that seemed to contain inside information, but it still wasn't a hundred percent sure. And of course they had no proof that Cohen had read the email, that he understood what it was and that he had traded based on its contents. So there were some big holes in their case. And they had to have a hard discussion about how to resolve this case. And there was a lot of attention being paid to this. All of Wall Street was watching to see what they were going to do.

DAVIES: So the two SAC guys - Steinberg and Martoma - went to trial, were convicted, sentenced to prison. What kinds of agreements or settlements were arranged in terms of Steve Cohen and his company?

KOLHATKAR: So the prosecutors had to have a very tough discussion - realistic discussion about the evidence they had and what their chances were of winning a trial. And ultimately looking at what they had, you know, they had their top prosecutors assemble everything into this ginormous memo. And Preet Bharara looked through it. And his deputy read through it. And they debated it for hours. They ultimately decided that the case that they did have was a case against SAC Capital itself, a criminal charge against Steve Cohen's company. And the government has done this in other cases. You know, it's a corporate prosecution. They charge the company itself with enabling of vast securities fraud. They extracted over a billion dollars in criminal fines from SAC Capital, and...

DAVIES: Which Cohen himself paid, right?

KOLHATKAR: Cohen as the sole owner of SAC Capital had to basically write a check for that money. But of course he's so wealthy that he still had almost $10 billion in personal wealth left after paying this check. So of course the critics all looked at this and said, well, this isn't really a punishment for Steve Cohen because, you know, you didn't really make a dent in his lifestyle. You know, he paid $2 billion - almost $2 billion in fines and barely batted an eye. He himself is not being charged with anything even though he's the owner of SAC. He employed all these people who misbehaved. He reaped many of the profits himself personally. He paid them bonuses based on all this behavior. But they did not have what they needed to make the case against him, so they charge SAC.

And in the end, Cohen was required through his agreement with the government to shut SAC down and to stop operating a hedge fund. And what he was able to do though was to kind of keep his $10 billion dollars of personal wealth and open a family office, which is basically a private office that just manages your own personal wealth. It also has some of the money of his employees. And he has largely continued as he was, even though he's not managing outside investor money. He is still trading every day. You know, big banks are still doing business with him. And he is in fact preparing to reopen his hedge fund in 2018, at least this is a possibility. His agreement with the government gives him the ability to reopen next year.

DAVIES: So the company was shut down. Steve Cohen paid a fine of more than a billion dollars. Some of his people went to jail. I have to say the last few pages of your book are very sobering. Whatever good this might have done in terms of sending a message about insider trading and the government's willing to prosecute it, there was a court decision after this that undermined a lot of it, right? Explain this.

KOLHATKAR: That's right. Well, Michael Steinberg, who was one of Steve Cohen's employees, who was convicted of insider trading, he appealed his case. And his case was ultimately overturned. And the appeals court found that the government had been a little too aggressive in the way it was defining insider trading. And the court ruled that you need to prove, especially in cases where people are getting information second or third-hand, you need to prove that they really knew it was inside information, that they knew that the person who leaked it from the company was getting a benefit for the information.

And this forced the government to sort of reverse a handful of the convictions they had achieved through this whole campaign and made it harder for them to bring these kinds of cases in the future.

DAVIES: Wow, so (laughter) as hard as it was to build this case, it will be harder in the future. I want to talk just a bit about where we are in the new Trump administration. You follow these things a lot and, of course, you know, President Trump talks about sweeping changes in trade and tax and regulatory policy and repealing the Dodd-Frank bill that was to have reformed (unintelligible) the 2008 crash. Let me just ask you first, what's your take on how effective the Dodd-Frank reforms have been in changing our financial practices?

KOLHATKAR: I think there's no question that Dodd-Frank has made the financial system safer. It has reduced the likelihood that taxpayers would have to bail out a big bank the way they did in 2008 and 2009. And it has had an important effect on banks that take sort of government-backstopped investments. It's forced a lot of banks to stop doing proprietary trading or to drastically reduce the amount of proprietary trading they were doing. Now, that is trading with the bank's own money that involves taking risk.

A lot of people feel that banks should not be in that business. Banking should be boring, a lot of people say. Banks should be making loans and mortgages and paying people interest on their savings. They should not be out there gambling in the market. So although the financial industry has screamed and complained about many aspects of Dodd-Frank and it is perhaps not perfect and maybe it's too long, it has had many of the intended effects. And now new President Trump is proposing to basically eliminate it.

DAVIES: Well, Sheelah Kolhatkar, thank you so much for speaking with us.

KOLHATKAR: Thanks for having me.

DAVIES: Sheelah Kolhatkar is a staff writer for The New Yorker. Her new book is "Black Edge: Inside Information, Dirty Money, And The Quest To Bring Down The Most Wanted Man On Wall Street." Coming up, David Bianculli reviews the new FX series "Legion." This is FRESH AIR.

DAVE DAVIES, HOST: This is FRESH AIR. Our TV critic, David Bianculli, has a review of "Legion," a new TV series inspired by a Marvel comic premiering Wednesday on the FX cable network. Superheroes from the Marvel comic book universe have established hit movie franchises based on characters from "The X-Men," "Iron Man," "The Avengers," "The Amazing Spider-Man" and others. Marvel characters have also been on TV lately in such series as "Jessica Jones" and "Daredevil" on Netflix and ABC's "Marvel's Agents of S.H.I.E.L.D." David says "Legion" is TV's best comic book adaptation yet and by far the most visual.

DAVID BIANCULLI, BYLINE: Two things to know about "Legion" right from the start. One is that it doesn't look or feel like a drama based on a comic book. It's more like a next-generation version of "One Flew Over The Cuckoo's Nest" as filtered through H.P. Lovecraft or Edgar Allan Poe. The other is that it comes from Noah Hawley, who managed to take an already great movie - the Coen brothers' "Fargo" - and use it as inspiration for a couple of equally terrific "Fargo" miniseries. Hawley's TV versions of "Fargo" are all about character and acting and plot twists and deliciously rich visuals.

The same is true of "Legion," especially about the visuals. That's the third thing, now that I think about it, you need to know about "Legion" in advance. You have to watch it. I mean, really watch it. No multitasking. I don't think I've ever seen a TV series that demands you watch it more attentively or rewards that effort quite as much. Images come so fast and furiously it's impossible to make sense of them at first, but that's because "Legion" as a TV show is reflecting and refracting the perspective of its central character, David Haller, whose senses are bombarded the same way and who feels just as overwhelmed.

The opening sequence shows us quick-cut images summarizing David's entire life to that point to the tune of "Happy Jack" by The Who. But David's life is anything but happy. At the end of the montage, he tries to commit suicide by hanging himself. He fails in the attempt, of course, or there'd be no show, but he awakens in a psychiatric hospital, where he's administered anti-psychotic drugs and placed in group therapy. All we know about David at this point is what little he knows about himself. He's been institutionalized because he hears voices, has what he thinks are hallucinations and can barely function.

David is played by Dan Stevens, whom viewers may remember but probably won't recognize as the ill-fated "Downton Abbey" heartthrob Matthew Crawley. In "Legion," his character David is silent, sullen and jittery, even around his one friend in the hospital, Lenny, played by Aubrey Plaza from "Parks And Recreation." But he perks up considerably when he encounters a quirky and opinionated new patient named Syd, played by Rachel Keller. She's not comfortable with human contact. And when she joins David's therapy group and sits down while David is talking, the therapist retains his cool, but both Lenny and David are clearly intrigued by her.

(SOUNDBITE OF TV SHOW, "LEGION")

DAN STEVENS: (As David Haller) I saw things.

UNIDENTIFIED ACTOR: (As character) Delusions, you mean. We talked about that. Your brain chemistry, how...

STEVENS: (As David Haller) Hey, yeah.

UNIDENTIFIED ACTOR: (As character) ...Your illness simulates voices, all the hallucinations you describe, the devil with the yellow eyes. You have something to add?

RACHEL KELLER: (As Syd Barrett) No. Please keep talking so we can all pretend that our problems are just in our heads.

STEVENS: (As David Haller) What does that mean?

AUBREY PLAZA: (As Lenny Busker) It means that you're in here because somebody said you're not normal. Like, normal's this suit we're all supposed to - but you know who else wasn't normal? Picasso. Einstein.

KELLER: (As Syd Barrett) Ooh, I like her. I like you. You've got what the kids these days called moxie.

STEVENS: (As David Haller) You know, just so I'm clear, are you Einstein or Picasso in this scenario?

PLAZA: (As Lenny Busker) Whatever. All I'm saying is what if your problems aren't in your head? What if they aren't even problems?

BIANCULLI: The more Syd talks, the more David comes out of his shell, making for the most improbable and inconvenient romantic relationship since "Pushing Daisies."

(SOUNDBITE OF TV SHOW, "LEGION")

KELLER: (As Syd Barrett) You know those cartoons in, like, magazines? There's a man on an island with, like, maybe a single palm tree? People say go to your happy place and that's what I think about.

STEVENS: (As David Haller) Well, that's sad.

KELLER: (As Syd Barrett) That's sad? You're in a mental hospital. All I'm saying is that thing they tell us is crazy, how I don't want to be handled or you see stuff and hear whatever, voices, that's what makes you you.

STEVENS: (As David Haller) Do you want to be my girlfriend?

KELLER: (As Syd Barrett) OK. But don't touch me.

STEVENS: (As David Haller) OK.

BIANCULLI: Apparently, this "Legion" series is based on a Marvel comic from the 1980s, an offshoot of "The X-Men" in which Legion, the superhero name eventually adopted by David, has a series of powers and a very powerful genetic lineage. But Noah Hawley, to start this TV series, begins with an origin story where the hero doesn't even know he's a hero or that he has powers. He thinks he's delusional and doesn't know why there are strangers outside of the hospital trying to find, kidnap and control him.

In the first three hours of the show made available for preview, there are no superhero costumes and only the shadowy threat of a true villain. Instead, there are mysterious characters with mysterious motives played by Jean Smart, Bill Irwin and others. If you've seen either of Noah Hawley's "Fargo" miniseries, he's probably already earned your trust.

"Legion" will take trust, too, and commitment. Three episodes in, it's just getting started, and many of those almost subliminal images will take that long to become clear. But wow, what a fun ride. What an audacious, impressive, unpredictable trip. And for Noah Hawley, it's yet another amazingly original and exciting TV adaptation from a different medium.

DAVIES: David Bianculli teaches TV and film at Rowan University and is the author of "The Platinum Age Of Television: From I Love Lucy To The Walking Dead, How TV Became Terrific." On tomorrow's show, documentary director Keith Maitland tells us about his new film, "Tower." It tells the story of the 1966 mass shooting at the University of Texas when a sniper took a position in a tower at the heart of campus and opened fire, killing 16 and wounding three dozen others. We'll also speak with Claire Wilson James, the first person shot in the attack. She was 18 and pregnant at the time. Hope you can join us.

(SOUNDBITE OF CHRIS THILE AND BRAD MEHLDAU'S "INDEPENDENCE DAY")

DAVIES: FRESH AIR's executive producer is Danny Miller. Our interviews and reviews are produced and edited by Amy Salit, Phyllis Myers, Roberta Shorrock, Ann Marie Baldonado, Sam Briger, Lauren Krenzel, Heidi Saman, Therese Madden, Mooj Zadie and Thea Chaloner. John Sheehan directed today's show. For Terry Gross, I'm Dave Davies.

(SOUNDBITE OF CHRIS THILE AND BRAD MEHLDAU'S "INDEPENDENCE DAY")

Transcripts are created on a rush deadline, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of Fresh Air interviews and reviews are the audio recordings of each segment.