Daniel: In 2006, the CEO of Goldman Sachs was paid $54 million. That same year, the 25th highest-paid hedge fund manager on Wall Street made $240 million. Sophia: Wow. That is a staggering difference. Daniel: But the man at the center of our story today? He pulled in $900 million. And the government was convinced he was cheating to get it. Sophia: Okay, you have my full attention. That kind of money is almost an abstract concept. Daniel: That staggering wealth, and the deep suspicion surrounding it, is the subject of today's book: Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street by Sheelah Kolhatkar. Sophia: And Kolhatkar is the perfect person to tell this story. She's a staff writer at The New Yorker, a former financial journalist, and she spent three years on this investigation. The book was a New York Times bestseller and praised by critics as a true-life legal thriller. Daniel: Exactly. She frames insider trading not just as a crime, but as something akin to doping in sports—a normalized form of cheating that became essential to win in the high-stakes world of hedge funds. Sophia: I like that analogy. It’s not just about breaking a rule; it’s about a culture where everyone feels they have to break the rule to even compete. So what exactly is this performance-enhancing drug of Wall Street? What is "black edge"?

Daniel: That's the perfect question. On Wall Street, everyone is looking for an "edge"—some piece of information or analysis that gives them an advantage. Most of it is what traders call "white edge"—public information, brilliant analysis, things that are perfectly legal. But then there's "black edge." Sophia: And that is... Daniel: Illegal, non-public information. The kind of tip that guarantees a stock will go up or down. It’s the closest thing to a sure bet, and it’s completely against the law. The book opens with a stunning example of this in action. FBI agent B.J. Kang is listening to a wiretap on a guy named Raj Rajaratnam, a billionaire hedge fund manager. Sophia: They’re wiretapping a billionaire? This is already a movie. Daniel: It gets better. On the call, a trader named Danielle Chiesi is feeding him inside information about a tech company called Akamai. And she's not subtle about it. She tells him their earnings are going to be bad and then says, and this is a direct quote, "Raj, you better listen to me. Please don’t fuck me on this." Sophia: Whoa. They're just saying this on a regular phone call? No code words, no secret handshakes? Daniel: None. It was brazen. Rajaratnam immediately shorts the stock—bets that it will go down—and makes over $5 million when the bad news becomes public. Chiesi makes $2.5 million. For the FBI, hearing this was like striking gold. It was the thread they could start pulling. Sophia: And where did that thread lead? Daniel: It led them to the biggest whale in the ocean of hedge funds: Steven A. Cohen and his firm, SAC Capital. Cohen was a legend. He came from a middle-class family on Long Island and was obsessed with making money from a young age. The book tells this great story about him in high school. Sophia: Let me guess, he wasn't mowing lawns. Daniel: Not at all. He was running high-stakes poker games. While his friends were working at the local car wash, he was winning thousands of dollars a night playing cards. He learned early on that you could make a fortune not by creating something, but by understanding risk and psychology. He brought that exact mindset to Wall Street. Sophia: Okay, but being a great poker player or a brilliant trader isn't a crime. What made SAC so different that the FBI zeroed in on them? Daniel: It was the sheer, unbelievable consistency of their returns. For nearly two decades, SAC averaged 30% annual returns. The market goes up, they make money. The market crashes, they make money. It was so consistent it defied logic. And the culture Cohen built was relentless. He hired traders he described as "risk-takers" and paid them enormous sums, but the pressure to deliver was immense. The unspoken rule was: find an edge, any edge. Sophia: And that pressure to find an "edge" is what pushed people into the "black edge" territory. Daniel: Precisely. It created an ecosystem where getting illegal information wasn't just a temptation; for many, it felt like a job requirement. And the FBI was starting to realize that this wasn't just a few bad apples. It was the whole orchard.

Daniel: And that realization, that this was a systemic problem, is what kicks off the hunt. The investigation expands, and the FBI starts using classic mob-busting tactics on these Wall Street guys in their expensive suits. Sophia: What kind of tactics are we talking about? Daniel: Confronting them on the street, threatening them with prison time, and trying to "flip" them into becoming informants. There's a gripping story about two former SAC and Galleon employees, Ali Far and C.B. Lee. FBI agent B.J. Kang flies out to California, confronts Far at his home, and plays him a recording of his own voice on an incriminating call with Rajaratnam. Sophia: Oh, that's cold. Just showing up at your house with the evidence on a tape. Daniel: It's a powerful psychological blow. Kang basically tells him, "We have you. Your life as you know it is over. Or, you can cooperate." Far panics, and eventually, both he and his partner Lee agree to become informants. They start feeding the FBI information about the inner workings of these funds, including SAC. Sophia: So they're not just flipping traders, they're flipping doctors now? How does a respected, elderly doctor get tangled up in a federal insider trading case? Daniel: Money and ego. The book details how these "expert networks" sprung up, connecting hedge funds with industry experts. Doctors, engineers, scientists. They'd get paid thousands of dollars for an hour-long phone call. Dr. Gilman started consulting for a firm called Gerson Lehrman Group, or GLG. Sophia: And that’s how he met Mathew Martoma. Daniel: Exactly. Martoma, a portfolio manager at SAC, was laser-focused on a new Alzheimer's drug being developed by two companies, Elan and Wyeth. A successful drug would be worth billions. A failed one would be a disaster. Martoma cultivates this relationship with Dr. Gilman, who just happens to be on the secret safety monitoring committee for the drug trial. Sophia: Hold on. This is where it gets really murky. There’s a system for this, right? I remember you mentioning it. Daniel: Yes, another trader at SAC, Jason Karp, had a system for classifying information. "White edge" was legal public data. "Gray edge" was fuzzy—maybe a rumor from a supplier, something hard to prove. But "black edge" was clear-cut illegal inside information. Sophia: So Martoma was swimming deep in the 'black edge' territory, and it seems like some of his colleagues suspected it. Daniel: They did. Karp and his team were betting against the drug, thinking it would fail based on their own research. They couldn't understand why Martoma was so bullish. They even warned Cohen, but Cohen sided with Martoma. He trusted Martoma’s "conviction." Sophia: So they have the doctor, they have Martoma, they have the suspicious trades. This seems like a slam dunk. What happened?

Daniel: This is where the story becomes a high-stakes thriller. In July 2008, Dr. Gilman is chosen to present the final, secret results of the drug trial at a major conference. Before he tells the world, he gets on the phone with Mathew Martoma and walks him through the confidential data. Sophia: And the results were...? Daniel: A failure. The drug didn't work. Martoma hangs up the phone, knowing that Elan and Wyeth's stocks are about to be annihilated. He immediately calls Steve Cohen. The next morning, SAC begins a frantic, secret operation to sell its entire $750 million position in the two companies. Sophia: Secret? How do you secretly sell three-quarters of a billion dollars of stock? Daniel: They used special "low visibility" accounts and spread the trades out so no one would notice one massive seller was dumping shares. Over the next week, they got out completely. But they didn't stop there. Once they were out, they then took a massive short position, betting nearly a billion dollars that Elan's stock would crash. Sophia: A quarter of a billion dollars on one tip? That's just breathtaking. Daniel: It was one of the most lucrative insider trades in history. And when the news finally became public, the stocks cratered, just as they knew they would. The government later estimated that SAC made profits and avoided losses of over $275 million. Sophia: So what happened to Martoma? Daniel: The FBI eventually caught up with him. There's this incredible scene where they confront him at his new home in Florida. He's so shocked that he literally faints in his driveway. Sophia: I don't blame him! But what about Cohen? He made the final call. Did they finally get him? Daniel: This is the great, frustrating ambiguity at the heart of the book. The government had the phone call between Martoma and Cohen, right before the massive trades. But they couldn't hear what was said. Cohen, for his part, was a ghost. He barely used email. His lawyers argued he got thousands of emails a day and probably never saw the incriminating ones. During his deposition, he just kept repeating, "I don't recall." Sophia: So he just played dumb. Daniel: Brilliantly. In the end, the government felt they couldn't win a criminal case against him personally. Instead, they indicted the entire firm, SAC Capital. The company pleaded guilty to insider trading and paid a record-breaking fine of $1.8 billion. Sophia: A huge fine, but Cohen himself doesn't go to jail. Daniel: Not only does he not go to jail, he's not even barred from trading. The settlement required him to shut down SAC Capital to outside investors, but he was allowed to convert it into a "family office" and continue managing his own personal fortune, which was still many, many billions of dollars.

Sophia: That is an absolutely wild ending. The company is a convicted felon, but the man whose name is on the door walks away. Daniel: It's the central paradox. While all this was going on, while his firm was under federal indictment, Cohen went out and bought a Picasso painting, 'Le Rêve,' for $155 million. The prosecutors were furious. They saw it as a sign of his complete defiance, his belief that he was untouchable. Sophia: It's like he was flaunting it. The government takes away his company, and he buys a masterpiece. Daniel: And the most telling part? After SAC was branded a criminal enterprise, Wall Street banks like Goldman Sachs and JPMorgan Chase lined up to continue doing business with him. One executive at Goldman Sachs was quoted saying Cohen was an "important client" and a "great counterparty." The money was just too good to pass up. Sophia: So the system that enabled him in the first place just kept on enabling him. It makes you wonder, doesn't it? The book shows this massive, successful investigation, but the 'most wanted man on Wall Street' ends up richer than ever. What does that say about justice when it comes to the ultra-wealthy? Daniel: It's a question with no easy answer, and one that Kolhatkar leaves hanging for the reader. It forces you to confront the limits of the law when faced with immense power and wealth. It’s a question we'd love to hear your thoughts on. Find us on our socials and let us know what you think. Sophia: It’s a conversation that feels more relevant than ever. A truly fascinating and unsettling story. Daniel: This is Aibrary, signing off.