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Tue, 22 Mar 2022 07:01
FBI Agent BJ Kang gets a promising tip from an informant. Mathew Martoma, a trader at SAC Capital, goes on a hunt for inside information.
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To listen to American scandal one week early and add free, join Wondry Plus in the Wondri app. Download the Wondri app in your Apple or Google Play mobile app store today. Wondri app It's mid 2006 in New York City. In a park in Manhattan FBI agent BJ Kang walks along a shaded path. Nearby several children laugh as they play a game of hopscotch. Couples lounge together on the grass reading books. And everywhere he looks, Kang sees crowds of people enjoying the warm weather. But Kang is trying to find just one person, an informant who could be a key for his FBI investigation. As an agent for the Bureau, Kang focuses on securities fraud. Books at crimes in the financial markets, like Ponzi schemes and other criminal acts that hurt investors. Recently, Kang has been taking a close look at a potentially major source of criminal activity, hedge funds. Kang knows the basics. Hedge funds pool together money from investors and often take aggressive positions in the market. The risks can be high, but so can the rewards, sometimes producing staggering returns for their wealthy clients. Still there's a lot about hedge funds that remain shrouded in secret. And with rumors circulating that these firms are committing crimes, Kang has begun to dig deeper, contacting his sources and seeing what he might turn up. The man he's hoping to meet with today is a traitor who knows all about hedge funds. And might help Kang learn what exactly is happening inside these firms. And whether any of them are playing crooked. Kang runs a hand through his short hair as he continues to scan the park. Finally, he spots his man, reading a newspaper over by the back wall. Kang heads over and grabs a nearby seat. He opens a newspaper himself, and while pretending to read, he glances at the informant. Thanks for coming today. I didn't know if you'd show. Well, my interest was peaked when you reached out, Agent Kang. I had to show up. But tell me what's this all about. Who's the FBI going after? Well, you know I can't tell you that. This is just me gathering information. Oh, come on, you don't have to be so cagey. I helped you in Jersey City back when you were still focused on the small time. You know I can help you again. Just tell me who you're targeting. Kang turns a page of his newspaper. He's not yet ready to trade any intelligence, so he redirects the conversation. Well, before any of that, let's go over some basics. I'm new to this unit. Still getting up to speed. So start walking me through it. How does insider trading actually work? I mean, in real life. Well, it's both a simple answer and a really complicated one. But I guess it all comes down to this. The stock market is all about information. And as a trader, my job is to get the best information and to get it before the next guy does. Where does the information come from? Oh, God, anywhere. Could be an old college friend, guy you meet over drinks, your neighbor, your cousin, anyone. Look, it's not illegal to get stock tips. The issue is, if it's significant information you can trade on, that the public doesn't have access to. But what the SEC calls material non public information, well, it's hard to quantify. It's a broad rule. And the truth is, insider trading happens all the time on Wall Street. All the time, huh? Well, would it be more common in hedge funds? The informant smiles and turns the page of his newspaper. Aiton Kang, what do you think? Where do those returns come from? Well, you know the landscape. Who's breaking the rules? Well, there is one who's doing very, very well. You should take a look at SAC Capital. SAC. Yeah, Stephen Cohen's fun. He's a beast. 30% returns. Year after year, no one gets that. And you think that sort of success is evidence of insider trading? No, it's not evidence, Aiton Kang. Nothing bulletproof. But you don't get those kind of returns if you're playing by the rules. The informant folds up his newspaper and rises. That's about all the time I've got, but there is one last thing. Catching someone in the act isn't going to be easy. Every trader on Wall Street knows the rules and how to get around them. So trust me, if you try charging these guys, you will need to be absolutely certain about what you're doing. There'll be several steps ahead of you. Miles even. So good luck. It's a wild west out there. Kang nods and the informant turns, making his way back out of the park. Once he's alone, Kang exhales deeply. This is a promising lead. If there's anything behind these allegations, hedge funds like SAC Capital could be responsible for serious criminal acts. And so at this point, there's no doubt that the FBI needs to continue pushing forward and investigating hedge funds. But Kang hasn't forgotten the informant's final words. The investigation isn't going to be easy. Wall Street traders know how to cheat and get away with it. So while Kang doesn't have strong evidence of insider trading yet, he's going to have to find it. Even if that means taking on some of the richest and most powerful people in the world. American scandal sponsored by Sachi Art. I'm lucky. Not only is my wife beautiful, funny, and smart, she also has great taste that matches mine, which has made decorating our home together a delight. But how do we go about finding the art for our home? Well, we agree on that too. Sachi Art. They have artworks from thousands of emerging artists around the globe in all styles. So you're guaranteed to find art that fits your style, space, and budget. Their view your room feature lets you visualize the art on your walls. And my advisor, Satin, was instrumental in finding our newest piece. Get 15% off your first order with promo code podcast. Just go to SachiArt.com and enter code podcast at checkout. Find art you love today. Lots of people don't know it, but autumn is an ideal time to plant. 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Cohen had been successful early in his career as a trader, but starting a hedge fund offered him the chance to earn huge profits, far beyond anything he'd ever made before. And by 2006, SAC Capital had grown to be one of the hottest firms on Wall Street. But with its profit soaring, SAC was the center of talk on Wall Street, with rumors floating that they may be engaging in criminal activity. That coincided with a shift in federal law enforcement, which had begun taking a closer look at hedge funds. Federal authorities were considering whether these high risk, high reward firms could be profiting from inside information and potentially gaming the financial system. One FBI agent, BJ Kang, would find himself at the forefront of this investigation. Kang began gathering damning evidence about hedge funds, and what he found would lead him into a brutal fight against Wall Street's kingpins. This is Episode 2, Inside Men. It's mid 2006, and Stanford, Connecticut. In the offices of SAC Capital, Matthew Martoma walks across a sprawling trading floor. It's full of men and women sitting at computer terminals, scrutinizing the movements of the markets. As Martoma makes his way through the office, he stares at all the action with a lookable. He's just 32 years old, but with dark, serious eyes. For a while now, he's been a portfolio manager at a smaller firm, where he specializes in biotechnology investments. Martoma is here to score a job with SAC Capital and to join the ranks of its elite traders making enormous profits. It's been a long time goal for Martoma. As the son of Indian immigrants, he understands that in America, money and status make everything easier. He saw that first hand at the prestigious universities he's attended. The wealthy students were always a step ahead. And now, with children of his own, Martoma wants to provide his family with every advantage possible. So today, he needs to impress SAC Capital's director of business development, Saul Cuman, who's going to be interviewing Martoma for a new job. Minutes later, Martoma steps into Cuman's office. Once they take a seat, Cuman cuts to the chase, explaining that SAC Capital has created a whole new division, focused on generating the best research and information for the hedge fund. And if there's any job from Martoma, that's where he'll fit in, acquiring the best information and using it to execute successful trades. Martoma nods his head, already it sounds like an exciting possibility. But his stomach almost lurches when Cuman describes the size of his potential portfolio. If Martoma turns out to be the right fit, he'll have $400 million to invest in a guarantee of taking home 17% of his profits. He could stand to make $10 million every year, a compensation package that's almost unrivaled in the industry. Martoma tries to hide his excitement. The numbers are unbelievable. But he hasn't been offered a job yet, and so Martoma begins selling himself. He explains why he thinks he'd be successful at the job. He's an expert in biotechnology, and has already proven himself a winning trader. He'd be able to hit the ground running if he got the job. Cuman nods, but then says there's something even more important than Martoma's success from the past. Martoma needs to be able to handle intense pressure, because in Steve Cohen's kingdom, it's prosper or die. Any portfolio manager who loses too many trades, will find himself without a job. Martoma swallows. He's heard about the culture at SAC. And a large part of him is conflicted about working in such a pressure cooker. But Martoma also knows that with serious pressure comes a serious paycheck. The kind of money that buys ferraris and betelies, cars that Martoma saw in the parking lot earlier today. So Martoma doesn't back down. He assures Cuman that he can handle the pressure and still produce results. He's already cultivated several high value sources inside the healthcare industry. There's no question his value to the firm would be immense. Cuman sits tapping his pen, scrutinizing Martoma. And for a moment, Martoma worries that he overdid it. He might have appeared too arrogant, too confident. But Cuman sticks out his hand. If Martoma was interested, the job's all his. Martoma is a wash and relief. This new job could change his life, but he knows he shouldn't make a decision right away. So he tells Cuman that while this is great news, he'll need to talk to his wife before making a final call. He hopes Cuman understands. Cuman nods and says of course it's a good idea. And as the two men rise and exit the office, Martoma takes one last look around. SAC capital is a hive of activity. It's the kind of place where Martoma might finally reach his full potential. And while he will talk things over with his wife, Martoma's decision is already made. He'll be back at these offices soon. He'll become one of SAC's star traders. And before long, he'll start taking home tens of millions of dollars. Three months later, Matthew Martoma sets down a telephone and turns on his computer. All day, he's been waiting for an email that could change the course of his work at SAC Capital. But that email still hasn't arrived. Martoma lets out a sign and glances over at Stephen Cohen, his boss, and the founder of the hedge fund. Martoma is feeling antsy. He came to SAC promising to deliver, producing large returns on his investments in biotechnology. He needs to impress Cuman, who has no patience for weak traders. But Martoma has yet to hit a home run. And that's why he turned to a firm known as an expert network, a group that acts like matchmakers between Wall Street traders and insiders in companies. With these kinds of connections, traders can gain access to some of the most valuable and rare information about a company, information that can help inform an investment. And Martoma needs that kind of information now. He's been looking to invest in two companies developing an Alzheimer's drug. If the drug pans out, their stock could be worth a fortune. But Martoma can't make that kind of risky investment without having good intelligence. So he sent a query to one of these expert networks, listing 22 medical experts he's hoping to connect with. Martoma assumed that at least one of them would respond. And as he stares at his email box, Martoma is feeling despondent. He hasn't gotten a single response from anyone all day. Martoma is about to turn his attention to another task when he hears the dang of an incoming message. He looks at the monitor and sees a new email from someone named Dr. Sid Gilman. The email is short into the point. Gilman is a neurologist and researcher at the University of Michigan. He says he'd be happy to work with Martoma as a consultant. Martoma doesn't hesitate. He grabs the phone and dials the number for Gilman. And after a few rings, the doctor answers. I first, the exchange is polite and a little awkward. Gilman confirms that he is a leading expert in Alzheimer's research. And he is working on the trial for Bapinusabab, the Alzheimer's drug. Gilman is even the chair of a key committee for that drug trial. Martoma sits up. This doctor could be a goldmine. He wouldn't just have access to the results of the drug's development. He's one of the people running the trials. Martoma knows this lead is worth pursuing. So he begins courting Dr. Gilman, discussing the science and potential cures for Alzheimer's. And prays is him too, saying it's an exciting time to be a researcher like him. When Martoma finishes, Gilman says he's impressed. He's spoken to dozens of traders at hedge funds. But Martoma seems to know a lot more about the science than any of them. Gilman says he's interested in consulting with Martoma, but there are of course limits. The doctor has to stay on the right side of the law, and that means strictly following his confidentiality agreement. He needs Martoma to understand that and to respect the boundaries of their relationship. Martoma nods, saying he agrees, playing by the rules is always the best course of action. But the two of them should be in regular contact. It would probably be smart for the two of them to have a standing phone call. Maybe Martoma could even come to Ann Arbor and speak with him in person. There's a pause on the other line. Martoma hopes he didn't just overstep. But Gilman agrees. He says he'll look forward to it. They'll talk on the phone regularly, and a meeting in person could be productive. Martoma smiles and thanks the doctor for his time. And when the two hang up, Martoma feels triumphant. Up until now, he's been worried about his track record at SAC Capital. He knows that Stephen Cohen could fire him at any moment for not hitting his numbers. But now Martoma has an expert on the inside of a drug trial. And if he plays this right, maybe he can convince the doctor to share a little extra information, giving Martoma the edge he needs to prove himself an SAC capital and make a fortune. It's a rainy afternoon in November 2006 and a few months later. FBI agent BJ Kang crosses the carpet of floor as he makes his way through a federal building in Manhattan. He opens a door and on the other side finds a man with a clean, shaven face and bright blue eyes. Michael Bowie is no stranger to the offices of federal prosecutors. Kang first met the lawyer four months ago during an interview at the US Attorney's Office. Bowie had come to explain why he was suing the hedge fund SAC Capital. He was representing an insurance company and said that SAC was damaging that company by spreading false rumors, hoping to depress the company's stock and make a profit off the decline. Bowie's allegations had surprised the prosecutors. But as an FBI agent investigating financial crimes, Kang realized that he might have just found another key source. Someone who could better explain the CD practices of hedge funds. And Bowie might be able to also shed more light on SAC Capital in particular, which could turn out to be one of the most crooked players on Wall Street. Kang takes a seat across from Bowie. It starts up his voice recorder. Mr. Bowie, thanks for coming in today. Your help could be a real asset as we take a look at some of the corrupt practices on Wall Street. Absolutely. I'm glad to be here. Well, let's get started. A few months ago, you claimed that many hedge funds rely on what you call an insider trading business model. Oh, gosh. Do I use those exact words? You did. You implied that the majority of hedge funds on a Wall Street were engaged in insider trading on a regular basis. And that helps explain the enormous profits it firms like SAC Capital. Well, Mr. Kang, I think I should back up. Let's start with a basic question. Do you understand how all this works, how all this fits together? Well, for the moment, assume I don't. Okay, well. A hedge fund takes big risks and aims for big profits, but independent funds like SAC Capital, they face much less regulation than bigger banks or mutual funds. Whether it's been no shortage of violations at some of the big investment banks, how is SAC Capital different? Well, Morgan Stanley, Goldman Sachs, we all know they sometimes behave badly. But we know what they're doing. It's all pretty predictable because there's history, better lower sight. Yeah, exactly. But we don't know what's going on at the hedge funds. They get these returns year after year. It seems impossible. And in a way, it is. They can only make these profits because they're not operating with the same kind of regulation. Well, what about the SEC? How are they failing? Is it securities in exchange commission? No, the SEC has no teeth. Not with hedge funds. Places like SAC Capital operate in the shadows. And you believe that's how they get away with cheating? Look, it's not what I believe. It's what I've uncovered already. Insider trading, schemes to ruin a company's reputation, firms like this will do whatever it takes to get their 30% return. And I'm telling you, it's how they operate. Cheating is the business model. But here's the thing. Look, there isn't just a couple of bad actors, a few bad apples ruining the bushel. Now, it's a systemic problem. And over the last 10 years or so, there's been a shift, a huge shift. Investors are taking their money out of banks and they're handing it over to hedge funds. Because of their outsized returns. Yeah, of course you go where the money is. There's not really a lot of consideration about how it's done though. So the investments come flooding in even if hedge funds break the law. We're act like thugs. As the two men continue talking, Bowie walks Kang through some of the dirtier secrets inside hedge funds. Practices like the use of expert networks and other services that help traders get information from people inside companies. The revelations are astonishing. And as Bowie gets up to leave, it hits Kang for the first time just how big a problem this really is. Corruption inside hedge funds appears to be rampant. In one firm, SAC Capital, maybe the worst or the worst. Kang has plenty of work ahead of him. But he's going to have to keep things quiet. So he doesn't scare anyone back into the shadows. It appears that Wall Street has become a home to criminals and corruption. And it's up to Kang and the FBI to fix the problem. We get support from Audible. We've all got busy schedules. And I'm sure sometimes you feel like with all the things you have to do, it's hard to find time for the stuff you love to do. Like reading, that's why Audible is so great. 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The sun went down hours ago, but Matthew Martoma is still sitting at his desk in the offices of SAC Capital. He's once again on the phone with Dr. Sid Gilman, having once become one of their regular chats. Martoma is a portfolio manager at the hedge fund, with a focus on healthcare and biotechnology. And over the last year, he's spoken many times with Gilman, a neurologist who's working on a clinical trial for a new Alzheimer's drug. After all the conversations, Martoma and Gilman have begun to open up to each other. Martoma has talked at length about his love for science and his young children. And Gilman has spoken candidly about the highs and lows of teaching undergrad, as well as his troubled relationship with his son. The conversations have clearly veered far away from business. But while Martoma has enjoyed these talks, he's never lost sight of the bigger goal. He's still trying to get information about the Alzheimer's drug and clinical trials. If he could get some exclusive information, whether it works, whether it doesn't, he could earn a fortune, along with the respect of his boss, Stephen Cohen. On the phone, Martoma and Gilman continued chat about work and families. It's a pleasant conversation, but Martoma knows he can't keep it up forever. He's going to have to convince Gilman to share non public information about the drug trials. So as Gilman finishes talking about a gripe at work, Martoma pivots and mentions something he discovered doing his own research. Apparently, the Alzheimer's drug may have the potential for serious brain swelling. Martoma asks whether that's something Gilman has seen in the clinical trials. Gilman hesitates, but Martoma reminds the doctor that he dug up this research. He's just trying to see if it's credible. After a long pause, Gilman says that, like all drugs, there are a number of potential side effects, headaches, back pain, swelling in the joints. Up until now, Martoma has been patient, but he senses an opening, so he asks directly whether those side effects did occur in patients in the trial. There's another long pause on the other end of the line, and Gilman says he's sorry, but he can't reveal that information. It's not public. Martoma knows he just crossed the line, but he can't stop now, not when he's close to getting valuable information. So Martoma keeps charging forward, asking again whether participants in the drug trial experienced any adverse reactions. Gilman sighs, but then all at once something changes in his tone. The doctor clears his throat, and in a quiet voice he says, yes, side effects did occur. Martoma sits up, suddenly alert. Gilman is talking, sharing sensitive information. This may be Martoma's only shot, so he pushes Gilman for details. Did patients experience brain swelling? That kind of side effect could be catastrophic for the drug's prospects. Gilman's voice remains quiet, and he says, yes, he has seen brain swelling. But Martoma is wrong. He has it backwards. Brain swelling could very likely be assigned that the drug is working. The tone of the conversation has shifted. It's clear to both men that they've crossed a line, but Martoma doesn't care. He's gotten exactly what he needed after spending countless hours on the phone with the doctor. He has some proof that the drug could be a success, and he should invest in the pharmaceutical companies right away. After hanging up with Dr. Gilman, Martoma starts to calculate how he'll divvy up his capital between the two companies responsible for the drug. There's no reason to hold back, so Martoma is going to take large positions in both companies, and then sit back and watch those investments grow. It's July 20th, 2008, in the town of East Hampton, New York. It's a humid Sunday morning, and Stephen Cohen is reclining in the backyard of his mansion and enjoying the calm and peaceful day. As Cohen lies back in the sun, he listens to the waves off in the distance along the coastline of Long Island. He can't help but think of the irony of the situation. When he was young, Cohen did everything he could to get off Long Island. But now in his middle age, he's come back. The difference this time is that he owns a beautiful mansion, and he's far from the backwaters of his old hometown. Cohen looks out at his pool, which shimmers in the sunlight. It's a beautiful sight, and Cohen feels pleased with everything he's accomplished over the years. His hedge fund, SAC Capital, is a runaway success. Cohen himself has worth some $9 billion, making him one of the richest men alive. And the whole of Wall Street recognizes Cohen as a brilliant trader, a titan of the financial markets. Still as Cohen picks up a newspaper and starts reading, he reminds himself that he can never rest on his accolades, especially now with the US facing a financial crisis. Stocks are falling, and with the collapse of the housing market, everyone seems to be scrambling and losing money. But Cohen has managed to keep SAC Capital performing well. Still, if he wants to keep producing large returns, he knows he'll have to find the edge, a hard to find information that gives him, and his traders, an advantage. Cohen flips the page of his newspaper when his cell phone suddenly vibrates. Check the screen. It's an email from Matthew Martoma, one of his portfolio managers. The subject line is concerning. That's a good time to catch up with you this morning, the email says. It's important. Cohen frowns. He was hoping for a little more peaceful time out by the pool. But after scanning the email, Cohen realizes the issue is an emergency, one he can't ignore. Cohen dials Martoma's number and waits nervously for his employee to pick up. Steve, hey, I apologize. I know it's a Sunday, but we have a big problem. I'm freaking out, really, and I need your help. Matthew, calm down. Tell me what happened. It's a land in Wyeth. This is about the Alzheimer's drug. Yeah. Well, so you know my position is large. Huh? Right. How big? We're in for over a billion. Okay. But what's the problem? You said you were at a conviction rate of 9 out of 10. You were a certain who was the right call. Yeah, I was all but certain. Something's changed. Martoma goes silent. Cohen can almost hear him quivering on the other line. Steve, I thought I was right, but the drug doesn't work. It's only effective in half the people in the clinical trial. Half. Yeah, half. I'm sorry, Steve. I don't know what to do. I've messed up. For a moment, Cohen is struck with an overwhelming feeling of fear, something he hasn't felt in a long time. Because while occasionally, SAC capital does take a loss. This is a big one over a billion dollars. The hedge fund has already taken some hits from the financial crisis, but a big loss like this and the firm could suddenly find itself in serious trouble. Cohen knows there's only one possible decision. They need to dump the shares before it's too late. But that's risky. Our toma clearly isn't using publicly available information and trading on that intelligence could pose a threat. But Cohen won't allow his hedge fund to suffer such a major loss. So he hangs up with Marthoma and contacts his top broker at SAC. Cohen tells the broker to sell all their positions in the pharmaceutical companies. But they need to do it quietly. Cohen hangs up the phone, but he can't let go of the adrenaline coursing through his body, spoiling what should have been a peaceful Sunday morning. And with his heart still racing, Cohen gets another idea, one that makes him smile. He now knows that the drug trials are going to fail. The stocks of the pharmaceutical companies are going to tag. So Cohen can do more than just play defense. He can make some serious money by shorting the stocks of both companies, placing a bet that their value will go down. And surely they will, with everything Cohen just learned from his portfolio manager. It's early 2009, about six months later, at the FBI's field office in New York City. Agent BJ Kang puts on a thick pair of headphones and turns up the volume on a digital console. When he hears a pair of voices, Kang pulls up his laptop and starts taking notes. Kang and his partner are sitting in what's known as the wire room, a dark, windowless space where the two are eavesdropping on a phone conversation, one that could help him build a case against the hedge fund SAC capital. The two men on the call are Raj Raj Ratnam, a man who founded a $7 billion hedge fund, an Ali Far, one of Raj Ratnam's former employees. Kang knows there's a good chance that on this call, Far will hand over an illegal stock tip, giving his former boss material he needs to commit insider trading. That's of course a crime. But for Kang, what matters isn't just these two men or the particular exchange. It's what could come out of it. The leverage Kang could use to eventually go after SAC capital. Because what's true for the traders is true for the FBI, it all comes down to relationships. Ali Far, one of the men on the wire tap, has a business partner named CB Lee. And Lee used to be an analyst at SAC capital. Kang is trying to build a case against SAC. But to do so, he needs a way in. And he believes that these relationships could do the trick. If Far passes along illegal stock tips to his former boss, he'll be caught red handed. And that means he might be willing to flip. And if he does, Far could cooperate by incriminating his business partner Lee. The FBI could then go after him and get Lee to flip too, and be willing to turn on his old boss, Stephen Cohen. Flipping one criminal after another, Kang could build a case that would take down SAC capital. Before any of that, he needs his first potential informant to incriminate himself. On the phone, Far and Rajaratnam begin talking about semiconductors and microchips. It's an uneventful conversation. Until Far tells Rajaratnam, the company producing certain semiconductors, is about to guide down, meaning its quarterly earnings will be lower than expected. Rajaratnam lasts when he hears the news. Then thanks Far for his work, the line goes dead. Inside the FBI wire room, Kang and his partner turned to each other with a look of joy. It happened fast, and there weren't a lot of details. But what they heard was undeniable. Far passed on information that's not available to public traders. Kang rips off his headphones and starts gathering materials. He's going to have to move fast. First, he'll put pressure on Ali Far, convincing him to cooperate with the FBI. Then he'll have to do the same with Far's partner, C.B. Lee. He used to work at SAC Capital. But if Kang moves, play out as they should. The FBI will be one step closer to taking down SAC Capital. And it's founder, Stephen Cohen. What if your family was the victim of a home invasion? Or you woke up in the morgue? Or you were seriously injured miles from help? What would you do? This is actually happening. Ask our listeners this very question. While we bring you captivating real life stories of trauma and perseverance. This is actually happening. Brings listeners extraordinary true stories from the people who lived them. You'll hear stories about conflict, turmoil, or threats that dramatically alter the course of someone's life. Each episode is an exploration of the human spirit, and how survivors manage to overcome hardship and move on with their lives. Even thriving afterward. The new season of this is actually happening. It's available ad free only with Wondry Plus. And if this new season isn't enough, you can listen to more than 120 exclusive episodes available only to Wondry Plus subscribers. Join Wondry Plus on Apple Podcasts or on the Wondry app. It's April 2009 and late afternoon near Cupertino, California. An acquired suburban neighborhood, FBI agent BJ Kang, brings his rental car to a stop. He and his partner step out of the car. Kang buttons up his dark jacket and checks the holster at his side. He doesn't think he'll have to use a firearm in the confrontation he's about to initiate, but with people's freedom on the line, you can never be too sure. Kang takes a deep breath and gets ready to ring the doorbell of a stock trader named CB Lee, a former technology analyst for SAC Capital who used to work directly under Stephen Cohen. Kang knows that Lee has taken part in insider trading. It all came out recently when Kang confronted Lee's business partner Ali Far. Kang had been listening in on a wiretap and had proof that Far committed a crime and facing the possibility of time in prison, Far crumbled and admitted the truth. For Kang, it's all going according to plan. He got his first source to flip, and now he needs to use his leverage to acquire another informant, someone who can lead the FBI all the way to Stephen Cohen and SAC Capital. Kang and his partner walk up the front steps and ring the doorbell. When the door opens, Kang is faced to face with a 52 year old man with gray hair and baggy eyes. Kang flashes his credentials. Mr Lee, my name is BJ Kang, my partner and I are agents with the FBI. We'd like to ask you a few questions. Can we come in? I'm sorry, what is this about? Well, it might take a while, so we should find somewhere to sit down. You're not coming into this house until you tell me what this is about. Kang exchanges a look with his partner. You can already tell that Lee isn't inclined to be uncooperative. Mr Lee, we're investigating insider trading. Okay, what does that have to do with me? Well, we know you have broken federal law and you've done so many times. No, I don't know what you're talking about. Mr Lee, your partner, Ali Far has confessed on tape. He's the one who led us to you. You know, we're done here. Lee tries to close the front door, but Kang stops him. Mr Lee, we can play you the recording, or you can talk. You can tell us about how you paid a firm for illegal information about semiconductor companies. Your partner told us all about that. Agent Kang, I've done nothing illegal. Well, we have a different take, and I think you know we're right. But you're a smart man, and you probably want to strike a deal. Oh, is that what you're offering? A deal? Mr Lee, I'm offering you a chance to cooperate. Because if you do, you can avoid prosecution. Lee runs a hand through his hair. Huh. Okay. Well, before I make any decision, level with me. This isn't about me, is it? It's about Cohen. Mr Lee, I will level with you. You're right. It is about Cohen. And if you do cooperate, you'll have to come to New York and answer questions about your time at SAC Capital on the record. Well, I can answer questions. That's not all, though. Oh, we would like you to be an informant and wear a wire. No, no, I don't think so. Well, that's the deal. You wear a wire and help us get Cohen and you walk free. Or we'll arrest you now. It is your choice. Lee stares at the ground, his eyes sullen, and tired. But when he looks back up at the agents, he nods, and says he'll think about it. For Agent Kang, that is all he needed to hear. They don't yet have a guarantee. But Kang is confident that in the coming weeks, they'll get lead aflip. Eventually, he'll agree to wear that wire. And soon enough, they'll have a recording of Stephen Cohen himself taking an illegal tip from his old analyst. A few weeks later, Stephen Cohen is sitting in his office working when his phone rings. He glances over at the caller ID. It's CB Lee. Cohen stares at the phone as it rings. He has a busy day in front of him, and he probably shouldn't take the call. The Cohen is always likedly. He produced some of the best research and analysis, and he was fun to have around the office. So Cohen grabs the receiver, increases old employee, asking how everything's going. The two men make small talk for a bit, and then Lee gets to the point. He wants to know if Cohen would consider bringing him back to the hedge fund, but this time as a consultant. Lee says he's looking for new work, and reminds Cohen that it would be a worthwhile investment. Lee's information was always good, right there on the edge. Cohen taps his finger on the table, and he considers the pitch. It's true, Lee did use to have solid information, but sources can dry up and analysts can lose their momentum. So Cohen asks Lee to say more, to explain why now is the right time. His voice bright with excitement, Lee explains that he has people in sales and finance at NVIDIA, the technology company, and that his sources keep him updated on quarterly earnings. Lee also tells Cohen that he has a contact and a semiconductor company who feeds him information about their products. Hearing this, Cohen is intrigued, but he also notes he needs to be careful about these kind of conversations over the phone. So he tells Lee that he'll think about it and get back soon. Cohen hangs up, and soon after he takes a walk around the office to clear his head. He ends up at the desk of one of his research traders. And when Cohen casually mentions talking to CB Lee, the trader looks away, shaking his head. Seeing this, Cohen asks, what's wrong? Why did he just respond like he'd heard about a disaster? Meeting Cohen's eyes, the trader explains that there's a rumor going around. It sounds like Lee is working with the FBI. People are saying he's wired up. The trader had assumed Cohen had already heard the news. Cohen stands there staring, shocked. He's aware that the SEC has been poking around, but he had no idea the FBI was involved, or that a former employee might be trying to set him up. Cohen storms back to his desk, and for a few minutes he sits doing. The CB Lee might be trying to betray him, and suddenly Cohen feels like the world is closing in on him. That invisible enemies are lining up trying to take him down. Cohen takes a deep breath to call himself, and after a few minutes he regains his composure. If the FBI was listening to that call, Cohen didn't say anything incriminating. He's been in the business far too long to make a mistake like that. And now that he thinks about it, the call was actually useful. Because Cohen knows the score now. The FBI appears to be coming after him, and they're going to try to lure him into making a mistake. The Cohen won't fall for it. He just needs a cool head and a little patience. Just like those poker games so many years ago, he'll wait for the FBI to show their hand. Whether he has to bluff or play a stronger hand himself, Cohen has no doubt that he'll walk away the winner. From Wondering, this is episode two of the FBI vs the hedge fund from American scandal. In our next episode, a Wall Street Journal exposé creates problems for agent BJ Kang's investigation. On high alert, Steven Cohen realizes he must act quickly to protect himself. If you like our show, please give us a five star rating and leave a review and be sure to tell your friends. I also have two other podcasts you might like, American History Tellers and Business Movers. Follow on Apple Podcasts, Amazon Music, or wherever you're listening right now. Or you can listen to new episodes early and add free by subscribing to Wondering Plus in Apple Podcasts or in the Wondering app. You'll also find some links and offers from our sponsors in the episode notes. Supporting them helps us keep offering our shows for free. Another way you can support this show is by filling out a small survey at Wondering.com slash survey to tell us what topics we might come our next. You can also find us and me on Twitter. Follow me at Lindsay A. Graham, Lindsay with an A, Middle Initially, and thank you. If you'd like to learn more about Stephen Cohen and SAC Capital, we recommend the book Black Edge by Sheila Cole Hotcar. This episode contains reenactments and dramatized details. And while in most cases we can't know exactly what was said, all our dramatizations are based on historical research. American Scanless hosted, edited, and executed produced by me, Lindsay Graham for Airship, audio editing by Molly Bogg, sound designed by Derek Barrett, music by Lindsay Graham. This episode is written by George Duckard, edited by Christina Malsberger. Our senior producer is Gabe Riven. Executive producers are Stephanie Chen's, Jenny Lauer Beckman and Marsha Louis for Wondering. Hi, grownups. Bedtime isn't always easy. And winding down after a busy day can feel almost impossible. But we're here to help. Introducing Stories Podcast Sleep Series. All of your favorite stories from classic fairy tales to modern myths, all read in a calm and soothing voice over dreamy soundscapes and gentle lullabies. Snuggle in and turn down the lights and let us read the bedtime story so you can relax and unwind with your kids with Stories Podcast Sleep Series. Listen exclusively on Wondering Plus Kids and Apple Podcasts or on Wondering Plus in the Wondering app. Stories Podcast Sleep Series. Suming Stories to Help You Sleep. Available exclusively on Wondering Plus Kids and Apple Podcasts or on Wondering Plus in the Wondering app. Sweet Dreams.