I believe that Las Vegas is the city that serves as the purest expression of the American Dream. This city is the heart of arguably the ugliest State in the Union, an impression I took away after several long drives through it. Hot, ugly scrub desert surrounds your perspective, as you drive through Nevada and suddenly in the distance looms an imposing fairy land metropolis, surrounded by sprawling modern suburbia.
Your eye though is drawn through your windshield to the prospect of the “Strip” and its’ veritable wonderland of themed hotels and casinos. Suddenly, you’re not in “Kansas” anymore, but in the glorious city of Oz and while you were propelled there by car rather than hurricane, the excitement of the tawdry glamour is inescapable. To me Las Vegas is the epitome of the “American Dream” and American “democracy” in that if you have the money everything you desire is open to you, despite your race, ethnicity, or other aspects that in other places would be considered “social deficits”. Name your vice and it is always available for a price.
Nevada, since it is such a barren desert, ran into hard financial times in the depression and in 1931 passed laws legalizing gambling and making divorce easier than in any other State. This raised its financial prospects somewhat, but it took the vision of one Benjamin “Bugsy” Siegel to transform Las Vegas and Nevada’s fortunes. Siegel himself epitomized the “American Dream”. Born in Brooklyn to poor, immigrant parents, he chose crime and violence as his ladder to success. By 1946 he was the undisputed Crime Boss of Los Angeles and a close friend of Meyer Lansky, who is arguably the greatest criminal genius in American History and the man who conceived of “organized crime”. With the insight of a true entrepreneur, Siegel envisioned Las Vegas as a gambling mecca attracting players from all around the country and sold the idea to Lansky and the “Commission” that backed the initial investments. Siegel was shot to death in 1946 at his girlfriend’s home, so he never saw the real fruition of his dream.
Shortly after Siegel’s death Las Vegas was launched into national prominence and for many years huge financial success for its mob backers. However, though its prime movers were criminals and killers, one principle never wavered at the Las Vegas Casinos. They played honest games. The casinos didn’t cheat you. This was an important principle, since gamblers needed the assurance that they weren’t being cheated, as they threw their money away. From the perspective of the casino proprietors this was good business. In all games of chance the odds are with the “house” and so over time the “house” always wins. This is simple math. Given that, “cheating” was a stupid business model and though the people behind the casinos were criminals, they weren’t stupid. This introduction into a true example of the “American Dream” is needed to contrast against another example of the “American Dream” where the far more “respectable” entrepreneurs are simply so greedy, that they don’t and didn’t have the self restraint of those that our country deems “criminal”, showed during their time running Las Vegas.
Steven A. Cohen, is the son of a well-to-do dress manufacturer, who grew up in the wealthy suburb of Great Neck, NY. He is an example of the true nature of today’s American Dream, which is that wealth and privilege often beget greater wealth and privilege. Rather than the story of Meyer Lansky, who used crime and murder to reach the top from humble beginnings, yet always ran an honest game in his casinos, Cohen appears to have earned his vastly greater fortune by taking advantage of a “stacked deck”, with his entree into the social stratosphere propelled by his family background. It is estimated that Steven Cohen is worth some $9.3 billion and in 2013 was ranked by Forbes as the 106th richest man in the world. From his “humble beginnings” in a posh suburban landscape, to the lessons and contacts made at the tony Wharton Business School of the University of Pennsylvania, Cohen rose to become a titan of Wall Street, art connoisseur and philanthropist.
He began his career as a trader for the Wall Street firm Gruntal & Co. and was so successful there that he managed a $75 million stock portfolio. Cohen left Gruntal and started his own firm SAC Capital Partners in 1991. (Information on all references is found in the links below.). It is alleged, but never criminally charged, that the secret of Cohen’s phenomenal success as a Stock Market trader is the use of inside information, known as “insider trading” and forbidden by SEC regulations. The idea is simple. If one knows certain proprietary information about a particular company, such as they are about to announce the release of an innovative new product, or announce a quarterly loss, then you can buy or sell the company stocks before anyone else is aware of these salient facts. This is known on Wall Street as “the edge”. Since finance is not my metier, I must admit that I learned of Cohen and the inside of insider trading from the PBS Show Frontline. You can watch that show by following this link: http://www.pbs.org/wgbh/pages/frontline/to-catch-a-trader/ I recommend that you do watch it, because it provided the information I’m using for this piece and mostly because it is a very good show that will hold your attention.
After its founding, SAC Funding went on to become the biggest and most important investment fund on Wall Street. It often returned profits of 90% on its investments. It was so successful that it charged some of its wealthy clients a 10% commission fee and then took 50% of the profits realized and yet wealthy people lined up to use its services, since SAC consistently delivered higher profits on their investments than could be found elsewhere. Let me state emphatically though that SAC Capitol was not a Ponzi scheme ala Bernie Madoff. SAC actually made investments that actually paid off huge profits for its clients. However, SAC was able to make investments just before a particular stock was about to rise and sell short as a particular stock was about to plummet. SAC’s “edge” was inside information known to them before it was known to the general public, or even to the established investing world. This practice was exposed somewhat by a joint SEC/FBI task force:
“On November 20, 2012, according to The Wall Street Journal, Cohen was implicated in an alleged insider trading scandal involving an ex-SAC manager, Mathew Martoma. Cohen was not directly named in an indictment released in New York, but was referred to as “Portfolio Manager A” “according to people familiar with the matter.” Reuters reported that Cohen “personally signed off on” the trades that are being investigated, but that “experts said prosecutors lack proof that Cohen knew the trades … were based on inside information”. A SAC spokesman later stated that “Mr. Cohen and SAC are confident that they have acted appropriately and will continue to cooperate with the government’s inquiry,” according to The Wall Street Journal.
Five former SAC employees have been implicated in insider trading deals by prosecutors and three have confessed. Another three former SAC traders have been charged with illegal trading after they left SAC and two have pleaded guilty. SAC’s culture has been described as “high-stress, pressure-packed… (and) ruthless”. The firm relentlessly digs “for information about publicly traded companies to form a ‘mosaic,’ building a complete picture of the company’s prospects that gives the firm an edge over other investors.” (link below)
“A 2013 article in Yahoo! Finance reported that SAC Capital Advisors had been under investigation by the Securities and Exchange Commission (SEC) for six years. In November 2010, the SEC conducted raids at the offices of investment companies run by former SAC traders. Several days later SAC received what they described as “extraordinarily broad” subpoenas . In February 2011, two former employees were charged with insider trading. In November 2012 federal prosecutors levied charges against additional former SAC Capital traders. Portfolio manager Michael Steinberg was arrested in March 2013 and accused of using inside information to make $1.4 million in profits for SAC Capital. In June 2013 nine former SAC employees were charged with conspiracy and securities fraud.
In July 2013 the SEC filed a civil suit against SAC for failing to properly supervise its traders and the U.S. Department of Justice “filed a five count criminal indictment by a federal grand jury, including four counts of securities fraud and one count of wire fraud.” SAC reports that it will “vigorously fight” the accusations and charges. In November 2013, SAC Capital agreed to plead guilty to all counts of the indictment, stop managing funds for outsiders, and pay a $1.2 billion fine. Trading teams at SAC have since left to join competing hedge funds, such as BlueCrest Capital Management, Millennium Management, and Balyasny Asset Management. ” (link below)
The problem with “insider trading” is in my opinion endemic to Wall Street operations and in essence the whole “stock market” idea is merely a criminal hustle. That this is the way the financial stability of our country is maintained is but a cruel joke on all of us, except those who manage to profit from it. The truth of it all is that despite regulations, I don’t really see how insider trading is preventable and that is a social issue, rather than a regulatory one. As I mentioned Steven Cohen graduated from one of the most prestigious business schools in the world, Wharton. For many of us like myself, higher education represents our ticket into the middle class. Part of that “ticket” is that during college and graduate school you befriend fellow students and begin to form a network of friendships that can often help to shape your future career.
It is an obvious fact that part of the reason many parents strive to get their children into the most prestigious schools is because their children will have contact with people who can assist them in their future careers. The more prestigious the school, the more advantages the contacts made for the future. Someone graduating from Wharton, such as Cohen, who is a charismatic individual, would attract the “right” friends who will themselves go on to prestigious positions in a great variety of businesses, usually corporate in nature. From those school friendships ones’ network widens and becomes useful source material from which to draw if your “business” is stock trading. The information casually disclosed over cocktails, at dinners, or playing golf, can given one an “insiders” insight that can be extremely useful if your business is trading stocks. For someone who is perceptive, a good listener and a deft questioner the “edge” needed to trade stocks successfully begins with the social set. The road to success in America is paved by the wealthier your background; the more prestigious your higher education; and the wider your circle of privileged friends. When it comes to stock trading then, the distinctions regarding “insider information” begin at a level where the illegality is both difficult to prove and hard to distinguish from the mere social interchanges of friends. This and his $9 billion is why Mr. Cohen is not facing jail time and five of his subordinates will spend time in federal prison. Where these employees stepped over the line and where Steven Cohen has plausible deniability, is that they participated in schemes where money was exchanged with employees of various companies that disclosed firms “proprietary information” to stock traders, who then used this information to reap great profits.
This piece, however, is not written as an expose though it is informed by the information below. My point is that one of the pillars of this nation’s financial structure, the stock market, is and always has been a “rigged” game and that most of the people without the benefit of social connections are playing against a stacked deck. The fact is that there are always “wolves” out there ready to cull the flock of sheep trying with little success to emulate their “betters”. When I was coming of age in the 1950’s and in the years following, stock brokers were considered to be a respected breed of professionals. Indeed for the most part the stock brokerage firms hired and cultivated people from the wealthier classes of this country. So from a social sense the stock broker was a trusted person. There was a brief time in the mid 50’s, when my father owned a car dealership and we had moved to what would become a prestigious suburban community. He began dabbling in the stock market and I could remember him receiving “inside” calls from his stock broker, giving him tips on hot companies to buy. My father was a small timer though and I doubt his broker worked at a major firm, but my father trusted the tips enough to buy stock. His auto dealership went bust and then my father returned to what he did best, which was selling cars. The debt from the collapse of his business was enough to end his stock trading days. When he died, my brother and I “inherited” 80,000 shares of stock. One I remember was “Obabika Mines” and the other was “Magnolia Park” race track. The value of all that stock was about $200, which would be reduced of course by the broker’s fees for selling them.
My take away from that experience, is one that more information refined as my life progressed. I neither own, nor dabble in the stock market, because I don’t trust rigged games. My father’s original mistake was seeing a stock broker as a professional, rather than as simply another salesman like himself. If the broker makes money on each trade you make, why then wouldn’t the broker try to get you to keep making trades, known in the industry as “churning”. Why also would a relative “piker” like my father get “valuable” stock information, when from common sense the broker should save the most valuable information for the client’s that make the most money for the broker? As the Frontline show describes, part of the “edge” that SAC Capital had was that they were the largest customer of Wall Street brokerage firms and thus got the best inside information ahead of the pack. Another way the game is rigged and the deck is stacked.
Finally then, if the charges are true about Mr. Cohen’s SAC Capital, which appear to be with the guilty plea, how can we make a criminal distinction between him and Meyer Lansky? The only distinction to be made is that Mr. Cohen did not have his hand in murders, prostitution or drug dealing. While that is a very significant distinction, in the one enterprise where their activities were comparable, which was gambling Mr. Lansky ran a far more honest game. To me the stock market and stock trading are gambling by another name and as any gambler knows it’s not smart to play against a stacked deck.