on cspan2 at 8:00 p.m. >> next, q&a with authority and new yorker staff writers sheelah kolhatkar. then it is prime minister theresa may takes questions from members of the house of commons. after that, a look at legal decisions by supreme court nominee judge neil gorsuch. ♪ announcer: this week on "q&a," "new yorker" writer sheelah kolhatkar discusses her book "black edge: inside information, dirty money, and the quest to bring down the most wanted man on wall street." ♪

brian: sheelah kolhatkar, author of "black edge," who is stephen cohen? sheelah: he continues to be a legendary figure in the financial world. he built up an enormous fortune on the basis of his incredible skill for trading. he had a really strong instinct for the stock market. he would sit behind his screens and look at the way stocks were trading every day and was believed to have this intuitive, incredible sense of how to ride the waves in the market and make money. he has this very compelling, almost a rags-to-riches story. he grew up very middle-class in great neck, long island, an affluent town. this family had less money than a lot of others around him. i think from an early age, he

saw the hunger to become rich. he was very good at playing poker in high school. he went to wharton, a famous business school, and launched his hedge fund in 1992, and quickly built up a multibillion-dollar fortune, and he has the lifestyle to match. a 36,000 square foot mansion in greenwich, connecticut, helicopter rides, $100 million works of art, his own ice rink in zamboni. he became an object of extreme and the on wall street. brian: does sac capital stand for the obvious? sheelah: yes, his initials. brian: there's a moment in your book when you come in contact with him, and say he wouldn't talk to you for this book. tell us about that moment. sheelah: i have spent several years reporting this book. i went about doing that any investigative porter does. i had a lot of crt documents, and a lot ofnterviews, and i tried multiple times to convince

him to sit with me. of course, i would have loved to talk with him. by the time the story reached its conclusion, he had largely won the legal case i thought he may have a compelling reason to actually talk now. he beat the system. he was trying to remake his reputation. i heard he was going to be attending a very rarefied special art auction in manhattan. i had met with steve cohen's staff several times. i had written him letters. they always said, oh maybe he will meet with you. so i went there and i just kind of ambushed him. i saw him coming, and it was the first time i had ever really spoken to him directly. it was a powerful moment for me because i felt like i knew him so well at this point.

i had spoken to dozens of people who had worked with him, family members. we had a brief exchange, and he figured out as he who i was, he said, i don't think i can really talk to you, and sort of ran away. he looked very relaxed. he arrived just before the auction was set to begin, which i thought was interesting because he is so important in the art world. he's one of the biggest and most important modern art collectors in the world. he knew that they would never start without him. he's a vip in that world. i knew he was selling a painting out of his collection. he said, oh no, i am selling. he went to the auction, and a few minutes later he paid $140 million for a sculpture. brian: let me stop you. let's look at a little piece of video when he paid $141 million for. watch this. [begin video clip] ♪

>> a man raises his arm. a man clinches his fist. man is the indissoluble unity and the absolute source of his movements. [end video clip] brian: how could that be worth $141 million? [laughter] sheelah: it is worth whatever someone is willing to pay for it. that's how the market works. it is interesting because i think coen is recorded to have purchased at least two of the sculptures for that range. he bought one prior to this one, man."k that was "pointing

another one called "chariots," as well. i think part of the reason the price has become so elevated for these particular works of art is because there is a very small group of hedge funbillionaires who have become competitive about art collecting. i think it happens to a lot of them that they achieved a lot of financial success fairly early and realized that they were still not seen as these sophisticated, culture people. they were just seen as wall street guys. many of them became interested in the art world. it was this way to enter a whole other universe of high culture. you have your photo op year and the society pages, and get your name on the wall in a museum. many of his contemporaries became really interested in art, and they end up in this arms race, bidding up certain artists into these stratospheric prices. a lot of people believe there is a big bubble in the art market. brian: how much is he worth today? sheelah: i believe it's at least $10 billion. by the time all of this legal drama ended, he was forced to shut down his hedge fund, but he was still allowed to manage his own money through his private family office.

he's got a pool of his own money, upwards of $10 billion, and he still trades it everyday in the market, so his lifestyle is largely unchanged from what it was before. brian: how many people when he said sac capital went to prison or were convicted? how many around him? sheelah: at least eight were either convicted or pled guilty. however, these were either former or current sac employees. a handful of others were connected to insider trading more indirectly. however, the two central characters at the heart of the story, they are very central in my book, are these two former portfolio managers for his funds, matthew martello and -- matthew martoma and michael steinberg. martoma is serving a lengthy

prison sentence. although his cases on appeal. and, mr. steinberg was convicted, but was overturned after an appeal made it harder to convict someone for insider trading. he is now doing other things with his life. brian: has stephen cohen ever been convicted or charged of anything? sheelah: no, absolutely not. well, i should clarify. the fcc did charge him with failing to supervise his employees. it was a fairly light charge that was settled for a financial penalty and some modification to his business. he was never charged with any crime himself. there is sort of a dramatic moment in the story where the government, the department of justice, fbi, and the sec lawyers had spent years trying

to build up a case against stephen tell. they had been trying to flip people and get to operators. they had wiretaps on people. they had been tracking him for years. by mid-2013 there is this sort of dramatic moment where they have to decide, ok what are we going to do. into the entire world was watching. a very high profile case. the financial industry was sort of riveted, wouldn't to know whether this huge star of their world was probably going to go to jail. he and i describe this scene in my book where mr. cohen's lawyers came in to meet with the prosecutor said make a presentation and tied to persuade them not to charge their client. this is something that apparently happens. defendants are given the opportunity to come in and sort of present their defense. so a handfulf very high-priced defense lawyers came and there he and there were around 17 government attorneys present.

as he see lawyers,, prosecutors, others who had been involved in different aspects of the case. and mr. collins lawyers made a four hour presentation. aohen's lawyers made four-hour resin tatian. -- presentation. they may get the agreement that he read a critical email they ofieved contained evidence insider trading. he had no evidence that he had read the mail. he was nervous about losing a big case, so they really targeted that weakness. they said you have no one to put on the stand to say they saw him do it or talk about it with him. there is no evidence he read this email even if he did, it might not be -- this email. even if he did, it might not be illegal. they hammered that point home

over and over again. they still felt fairly sure of what they felt, which is that there might be something. they had to go and have a hard conversation about the evidence they had and what they can do with it. they ended up deciding they did not have enough evidence to bring to a jury and be sure that they could win. they ended up indicting cohen's company instead of cohen himself. brian: and that company paid how much? sheelah: in total, $1.8 billion. one chunk was an fcc fine, and the other was a criminal settlement. brian: once in a while i see that you were a trader. where did that start? and we need to define things, like what is insider trading? sheelah: one of the reasons i became interested in this story and it connected with me is because i started my career working at two very small hedge funds. i was an analyst, a little

different from a trader. the analyst is sort of the egghead who does the research. traders sit there and decide when to buy or sell that traders sit there and decide when to buy -- traders sit there and decide whether to buy or sell. my job was to try and analyze our investments and help guide a portfolio manager in making these decisions, and then a trader would execute them. it's important to understand this word "edge" to understand the concept of insider information. formersteven cohen's was thisd, sac,

portfolio manager who had this system that he tried to teach to the guys working for him so they could stay out of trouble. it is a constant concern that you are going to end up with somenformation you shouldn't have. hedge funds are very driven by information. the better the information you have, the more likely you are to make money. if you have that information, you are going to lose money. everyone is out the new market trying to get the best, sharpest, most useful information. brian: let me ask you about a hedge fund. can i invest in a hedge fund? sheelah: that depends on what your investable assets are. in general, hedge funds are intended to cater to wealthy investors who can afford to lose the money they put in. brian: was the difference between buying a stock from a company or through a broker and investing in a hedge fund? sheelah: hedge funds were

conceived as this boutique, rarefied product catering toward wealthy investors. the idea was a hedge fund was going to take a lot more risk in the markets, potentially, then a regular mutual fund at fidelity or state street. regulators looked at this and said, if you are going to be taking all this risk and borrowing money and trading it, or if you are going to be shorting stocks, which is betting that a stock will go down rather than up, a very risky activity, not everyone does, the sec said you can only do that if you are taking money from people who can afford to lose the money. we don't want you taking money from middle-class dentists or teachers or whoever. who will be devastated if they lose this money. brian: why is the government protecting? sheelah: that's the purpose of the regulators, to make sure the market is fair and regulated and that no one is getting fleeced by these hedge funds. brian: how many are there? sheelah: thousands. brian: do they all make money?

sheelah: i would argue most of them do not, but a handful make a tremendous amount of money, and they have made the founders of the hedge funds extremely wealthy. partly this is because they charge very hefty fees, much higher than you would pay at any of your mutual fund companies. like vanguard. charge typically 2% to 3% of the assets they are managing. brian: if i gave them $1 million, they would take 2% off the top. sheelah: just to cover their overhead. at the end of the year, the figure out what rockets they -- at the end of the year, they figure out what profits they made. brian: let's say they make 100% profit. in other words, the whole hedge fund starts out being worth $10 billion, at the end of the year is worth $20 billion. sheelah: they look at 100% profit, and depending on the fund, they will take 20%, sometimes even 50% of that profit and keep it for themselves. that is known as an incentive fee.

that is motivation for the hedge fund manager to not do anything really foolish and to work really hard. brian: how much did mr. cohen make? sheelah: even with high fees, his returns were spectacular. especially during the early period. he was often returning 30%, 40%, 70%, and investors were fighting to get into his fund all the time because he was just churning out profits. brian: when did you work in his hedge fund? sheelah: i was working in a hedge fund from around 1998 to 2002. brian: how big was the office? sheelah: tiny. fewer than 10 employees, both of them.

this is how steve cohen's hedge fund began, by one or two people who did not want to go work at goldman sachs. they did want to have to deal with the big corporate culture. they didn't want to wear suits. they were smart and just wanted to make money. they were scrappy and ambitious. a lot of these hedge funds were shops opened by two or three people. often, especially if they were doing well, they would grow very quickly. brian: let's say you were at this small hedge fund, and i have a lot of money, and i call you up and go, who do i talk to? sheelah: it depends. if you are a brand-new, small hedge fund, you may speak to the fund manager. if you are a slick, sophisticated multibillion multibillion dollar hedge fund, you would be to someone there to cater to investors. brian: let's say i would like to invest. do i just write a check? sheelah: it's a little more complicated that.

you have to kind of prove you have enough net worth to qualify to be an investor. it is also possible, if it is in demand, it might not take money from anybody. this often happens with the really hot, high-performing ones. they can kind of pick which investors they want. brian: what kind of people work in a hedge fund office? sheelah: do you mean the staff positions? brian: you walk in, and where do these folks come from? male, female? minorities in the business? sheelah: sure. i will say hedge funds became very quickly one of the most efficient vehicles to become extremely wealthy. they became known as places to go if you want to get really, really rich. you can make more money and a hedge fund that had a big bank goldman sachs or jpmorgan. eventually, over time, hedge funds started attracting the best students out of ivy league

colleges. math graduates from m.i.t., young, ambitious, hungry kid with phd's in science and computer programming. often these people are flocking to hedge funds. brian: where did you come from to a hedge fund? sheelah: i came from a very different background. brian: where did you grow up? sheelah: toronto. brian: parents were from? sheelah: my father is from india. my mother is from the midwest. brian: is that name indian, kolhatkar? sheelah: yes, it is south asian. brian: there are a lot of indian americans you are writing about. did that cross your mind? sheelah: it was obvious. it was remarkable. there are a lot of south asians in all corners of the government, the hedge fund world. i would occasionally ask people if anyone thought about that,

and the one explanation i got was at many of these insider-trading rings that the government was pursuing spring up out of personal relationships and personal networks. often, people end up involved in that kind of behavior with their friends and people they went to college with, so you would end up with these circles of people where you would have certain groups overrepresented. it was interesting to me. brian: you went to school where? sheelah: i graduated from nyu. brian: in what? sheelah: i have a degree in film. brian: and what did you do after you worked for the hedge fund? sheelah: i spent about five years working for these two hedge funds. it wasn't at all what i intended to do, as you can discern from the fact that i have a film degree. i fell into it by accident. the whole time i was there, i learned a tremendous amount and loved it. i felt a bit like an

anthropologist in this world that was really foreign to me. every year i would say to myself, ok, i'm going to do this for one more year and then get out and go become a writer or journalist. every year, i would get a bonus and think, well, maybe i should stay a little longer. i think that is what draws a lot of people into that world, the money draws people in. brian: did you make a lot of money while you're there? sheelah: not relative to what would be a lot now. but for me at the time, it was a lot. brian: and now? sheelah: i'm a staff writer at "the new yorker." brian: this is a very detailed book. about a lot of names and all we won't be getting into.

but i want to jump into something from 2011, thanks to pbs "frontline." it is available on the website if you want to watch. here is stephen cohen in a deposition which i want you to explain. clip] >> you have an understanding about if you are ever allowed to trade? >> is not the way it's explained to me. the way i understand it law, is it is very vague. it is an interpretation of the law. >> you understand the fcc rules on trading and insider information is that they do not preclude unequivocally trading while in possession of such information? >> i'm not aware of that. >> you're not aware? >> no. clip]ideo

brian: what do you see there? what is that from? sheelah: if the video of a deposition he gave in a case that was a private, commercial litigation involving a company called fairfax, a canadian insurance company, that accused a bunch of hedge funds of manipulating its stock. brian: did you watch all of that position? sheelah: i watched some of it. i'm not certain i watched all of it. brian: it's available on the pbs frontline website, if people want to watch it. sheelah: is interesting. i remember when those were leaked, it was quite dramatic. brian: we are going to jump around. if people want to know more, it is in the book. i want to go to 2008, chicago, illinois. dr. sid gilman. set it up, please. who is dr. sid gilman? sheelah: dr. gilman was a very accomplished alzheimer's researcher at the university of michigan. he was head of the medical department there. he authored medical papers,

mentored students, helped with drug trials. he was a lion of the scientific community. very highly regarded. in his 70's, at the time many of the events in the book place. at one point, one of steve's portfolio managers, matthew martoma, decided he wanted to research a drug trial. he wanted to invest in the development of this drug. there were two drug companies trying to invent a cure for alzheimer's. brian: elon and wyeth. both have been purchased since. pfizer took over wyatt. sheelah: developing a drug is tremely expensive. going through the drug approval process is expensive. often, companies will team up to dohis.

that's what these two did. matthew martoma, when he arrived, was very ambitious. he was looking for a winning trading idea. he was an expert in technology stocks and biotechnology stocks and drug companies. he had been tracking the development of this alzheimer's drug. there was tremendous commercial potential for this drug, basically for any company that found a cure for alzheimer's. there were billions of dollars to be made. so he started looking around for people who could help him learn more about this drug trial. he ended up becoming connected to dr. gilman. over a number of months, cultivated a relationship with dr. gilman that culminated in him getting allegedly inside information from dr. gilman about the drug trial. there is a very dramatic moments that i recount in the book where dr. gilman appears at a medical

conference in chicago, i think in july 2008. it is this big unveiling of the final trial results of this alzheimer's drug trial. this auditorium at the hotel in downtown chicago is packed. doctors, researchers, traders and analysts from wall street, because all of wall street has been gambling one way or another on the outcome of this trial. so dr. gilman stands up there and clears his throat, and announces the drug trial results on a powerpoint. he was trying to be optimistic, because i think he was so hopeful, and wanted so badly for this drug to work. but ultimately, the people in the audience understood that the

trial had shown that the drug was not working. it was not becoming more effective if you took a higher dose. there were all sorts of problems with it. immediately, everyone on wall street starts trying to sell. these code red alerts go out. everyone is dumping their shares. turns out martoma had allegedly gotten this information the week before, and sac capital had shorted the two stocks. it really illustrated the difference there. all of these people who did not have the benefit of that information earlier ended up losing money because stocks plunged. brian: did you interview dr. gilman? sheelah: no. brian: did you interview matt martoma? sheelah: no. he changed his name at one point.

brian: why? sheelah: you would have to ask him. brian: where is he now? sheelah: in prison in florida. his case is on appeal. brian: is he from india originally? sheelah: his family is of indian descent. brian: there was a time when this man fainted in your story. sheelah: yes. there are several fainting men in my book. brian: just dropped. sheelah: the fbi, one day the fbi decided they were going to pursue him. one of the main characters in the story was this very ambitious tough guy fbi agent. brian: korean american? sheelah: yes. he went down to florida to approach mar at his home in boca raton. it was there hope he would flip and become an informer.

there was this conspiracy involved dr. gilman and the drug trial. brian: was it in order to get steve cohen? tot's who they wanted him flip? sheelah: i think that was their ultimate hope. they would probably never admit that officially. but it seems quite clear from the way they were behaving. martoma himself was a worthwhile target on his own. but yes, i think they had a lot of questions about what he had shared with cohen. so bj kang went down there and confronted martoma on his front lawn, and said i want to talk to you about insider trading. what happened in july 2008. and he fainted. king shook his head. he had been working on this case for years.

brian: bj kang is in the first sentence of your prologue. sheelah: he's a key figure in this thing. he was one of the central fbi agents who investigated these cases. he did some of the big arrests. he arrested another big hedge fund manager, who was charged before the martoma case. brian: he's originally from sri lanka, where is he today? sheelah: he is in prison i believe in upstate new york. i would have to double check. brian: what is hard for the outsider to understand is, you talk about three groups of people from the government that make a difference. the sec, the fbi, and the u.s. attorneys. you talk a lot in the book about how there is jealousy between the two apartments. let's review this.

sheelah: the top prosecutor in manhattan for the federal government. very important law enforcement figure. from india. [begin video clip] >> we are here to introduce a resolution that is matching. all of the involved companies guilty,eed to plead winding down and close their outside investment businesses and/or all have agreed collectively to pay total finds it yet in the record amount of $1.8 billion. [end video clip] brian: who is his man and how did he get to where he is?

in new: he grew up jersey, his father was a medical doctor. brother, vinny, were these incredibly accomplished students. apparently there parents were very typical tiger parents, wanted them to have straight a's and sacrificed a lot to their children could go to these schools. he wanted for a long time to go to these schools. he had a profound sense of right and wrong. he was in debate, he enjoyed standing up and arguing and developing ideas and performing. -- i havep going to to double check. he ended up going onto columbia or harbored. brian: i think columbia law school. sheelah: there are a lot of ivy league graduates of my book so

sometimes i confuse him. then he worked for chuck schumer. schumer is the one who recommended him for the job he has now which is u.s. attorney for the southern district job. one of the most high profile enforcement. new york city has many of the most high profile cases. terrorism cases. complicated financial crime cases. he was told recently that president trump wants him to stay on in the role which surprised some people since he was an obama appointee. brian: looking at how all this works. you talked about insider trading and i kind of learned from you that it is not that clear sometimes what insider trader is. -- insider trading is. sheelah: there is an easy way to explain it by explaining the title of the book, black edge. there were some employees at steve:'s firm.

there was white edge, which was considered to be information that was publicly available that anybody could get. companies public sec filings. anyone can look at those on the internet. that is white edge. everybody kind of has access to it. it is not very valuable for a traitor because everyone hasn't. presumably, there is no money to be made from trading based on this content. greathere is open -- "in "gray- then there is edge," which is information

that is sort of ambiguous. and an analyst might call an employee of a company and say you announced the merger. when is the merger going to close? you have announced this big investment that is happening. when is this going to happen? brian: would that have been you? sheelah: i did some of it, exactly. the person may or may not be authorized to tell you the information, so it depends of your relationship with the person, if you are a very important investor, they might say we are feeling good about it. so then you go back to your desk and you think, ok, was that material nonpublic information i am not supposed to trade on or was that just, you know, no big deal? hedge funds are supposed to have compliance officers and counsel to help advise you if you end up in this situation. a lot of the time, the information these analyst are getting is in this gray zone, so -- brian: one way to describe it, they do not have the kind rules you dof you went to a vanguard fund or something like that. i mean, they are not as regulated as some of the other funds are? sheelah: they are much more regulated, that is

absolutely true. they do not have to disclose as much about -- brian: to rich people? sheelah: some people believe that. a hedge fund manager would say, a lot of hedge funds take money from pensions funds managers, so they would say that some of their investors through these pension funds, which will put tons of money with different hedge funds sometimes, they would say, we are managing money for teachers in california. you know, as a group, so it is not only rich people who benefit from us, but for the most part, they cater to rich people. that is correct. brian: we talk about steve cohen sitting there and making 10 million dollars or whatever it is. he is not been charged with anything. he needs to have the edge, as you say, he needs to know information other people do not know? sheelah: anyone involved in any hedge fund trading and short-term trading, meaning every day, they are trading in and out of stock, all those people on edge. that is a common term in the industry. they want edge and you know, there is the white edge that is useless for their purposes, the gray zone, and then there is black edge, which is inside information.

brian: i want to go back to matt. you tell the story about matt martoma flying to ann arbor to gather more information about the alzheimer's drugs but at the same time, he is phony about it. he tells the dr. he is coming for another reason. tell that story, please. sheelah: over a number of months, gilman and smart, talk on the phone. they talk over dinner. they get together. lonely.e, he is he starts to see martello like a surrogate son. he starts to feel connected. he knows he is not supposed to be sharing information about the alzheimer's drug but over time he starts to shared because

martel may is really pushing. and pushing. gilman starts sharing information he is not supposed to be sharing. meanwhile, martel minute is back -- martel mine is back at sac working for steve cohen. he's advocating very hard for them to invest very heavily in elon and wyatt. brian: let me stop you for a minute. working for me and he comes in and says to me, we have to short this because his is not going to work -- is the issue at that moment -- does he tell him that he has gotten his information from dr. gilman? sheelah: that is the mystery at the center of this. after advocating for months to aggressively invest in these two companies on the basis of this trial, you know, martoma --

there were other people at sac against the idea because they did not think the drug trial was going to work out. there was arguing and no one could understand why martoma was so confident. at one point, one of martoma's colleagues said he is acting like he has black edge. there is all the fighting and mystery surrounding it, so it seems fishy, right? so the government alleges -- fishy, right? so the government alleges airplane tickets, phone records, documentary evidence, that, you know, that we before the trial was publicly announced in chicago, that martoma flew to the university of michigan to visit dr. gilman, visited dr. gilman's office, looked at the presentation dr. gilman was working on, that had all the drug trials in it, confidential information. martoma is alleged to have

looked at this. and then come on sunday morning, the following day, there is a phone call with steve cohen. the government presented some of the evidence. he sent an email to steve cohen sunday morning. they talk on the phone and no one knows what they said. and then, immediately afterwards, mr. cohen starts instructing his traders to sell off their shares and they spend the next week sort of liquidating their whole position, quietly, and it is important to note that there are many reasons why you do that quietly. i mean, if people hear that steve cohen is dumping shares, a can trigger something. brian: the u.s. attorney southern district of new york -- pointed by which president? president obama.

would you say, by the way, those positions often lead to running for attorney general, governors, senators? sheelah: preet in particular is seen as someone who has a lot of political ambition. brian: hired a pr group to come in and more so than normal? sheelah: he in particular was seen as being very sensitive to the press coverage. brian: we are talking about matt martoma, now in prison. >> as the criminal complaint in this case alleges, by corrupting a doctor with access to secret drug data, former portfolio manager matt martoma and his benefitted.

this is the most lucrative insider-trading scheme ever charged, allegedly resulting in an legal windfall to the hedge fund of more than a quarter of a billion dollars and that is billion with a "b." brian: did he become a...? sheelah: he became the star witness. brian: how big of a case was this? sheelah: this was a very significant case. this was $275 million profit, so that made it just monetarily, i think, the biggest insider-trading case ever and -- brian: how did they initially figure out that this was an insider-trading case? in you have got the securities and exchange commission. is thaan independent group in washington, independent of the president? sheelah: it is a regulatory agency and there are commissioners who oversee the sec and a chair who is normally appointed by the president, so often, the sec is independent. it relies on congress for its funding and budgets and it will reflect the political views of

the chairman. brian: and the recent chairman? sheelah: the outgoing chairman is mary jo white -- brian: who used to be the attorney in the southern district of new york. sheelah: i have to say a lot of the activity that's, you know, i cover in this book, the swirling, rampant, insider trading, a lot of it to place in the years leading up to the financial crisis, when the sec was managed for at least some of the time by people who did not really believe in regulation, you know, and there was a sense the market could regulate itself. a deregulatory time, a lot of this during the george bush era. at the end of it, we ended up with a huge mortgage fraud crisis and insider-trading

process. brian: the commissioners are appointed by the congress had approved by the senate. down the street is the fbi. sheelah: yes, so they are independent, and very different. the sec, there are all different divisions. there is the enforcement division and they are there to enforce security laws, and they are often doing the very painstaking, difficult work of looking at suspicious trades, so if something happens in the market, for example, you know, one day, there is an announcement that aol anti-merger are merging -- this is an ancient merger -- and time warner shares were up by $20 yesterday before theews came out. it looks a somebody knew something. that might get flagged by the sec. another agency might send a piece of paper that said you guys should look into this. somebody obviously knew, loaded up on shares of time warner right before the news came out. ok. then they start to send a

and they will get trading records, phone records, and they are doing painstaking work of analyzing all these documents and try to figure out if something happened that should not have happened. it can take months. i mean, the martoma case took years to kind of build. put together. brian: there is story about harvard and stanford and clerkships. what is the story? we are beating up on him but there are lots of other people in here. this story might be useful. sheelah: i will back into the story by saying that during matt martoma's trial, they are enraged and on the cover of the business section, there was this headline to the effect that matthew martoma falsified transcripts.

expelled from harvard law school. his lawyers were very concerned that members of the jury who were supposed to kind of be impartial and neutral might see this, so the story behind the story is that, you know, martoma was a very ambitious student. he went to duke, he then gained admission to harvard law school. incredible accomplishment. after his first year, he starts struggling a little bit, surrounded by these very ambitious students and everyone is getting incredible clerkships preparing for and know,careers and you

competing for these coveted summer jobs and martoma did not feel that his grades were quite good enough to get him one of these clerkship positions that he really wanted. brian: he got some b's, is what you're saying. sheelah: so he is alleged by harvard to have doctored his transcripts and apply for the clerkship and someone noticed something was off. and harvard, like all schools, they are very sensitive to scandals like this, so they conducted an investigation and concluded that martoma had falsified transcripts and lied about it to try to cover it up they were very unhappy and butter to expel him. he fought very hard in trying to convince them not to and try to tell them he had tried to fix the problem. he had apologized, all this stuff. they did not accept it, so he was pushed out. he continued to fight, you know, to fight to be reinstituted into the program, but they did not go for it. brian: we all have a whole -- we do not have a lot of time left.

i want to go to page 293 in your book and you will see the purpose of this. it is a whole page about patriciax-wife and that relationship, but it gets down to, mewhile, the procutors and regulators involved in the billing case against cohen and sac have moved on to more lucrative careers. what should we think about this? lauren eisner, the head of the criminal division that helped -- paul weiss helped with the team. sheelah: the list goes on from there. brian: the prosecutor who tried the steinberg case is one of those you write about, left the government for a partnership as milbank, tweed, hadley, & mccloy. corporate law firm

where she does white-collar defense work. richard was taking a job as general counsel or a hedge fund called elliott management. there's more, but... sheelah: a lot of people would look at that, and say that is the revolving door and that is a big part of the problem that we have in washington, which is that there are people going from the public sector to the private sector and sort of cashing in on their time in the public sector and they are not --, and then when they are doing their job that prosecutors and regulators, they are trying to set up a future high-paying job in the private sector, and it looks -- brian: let me read some more because it keeps going. after 25 years at the fbi, bj

kang's former supervisor joined goldman sachs as a vice president in the compliance crew. you continue, arol devlin-brown became a partner at the law firm. the most darling move of all came from amelia, a senior enforcement attorney at the sec who oversaw the agency martoma investigation. at the end of june, 2015, she shocked her colleagues by announcing she was joining the firm -- cohen's for whom attorneydefense worked. should we worry about this? sheelah: i think it raises questions. now, i feel like i need to point out that for these people i think it seems entirely normal to people in the legal profession to do this. they put in a few years working for the government, making a lot less money than they could be

making working at white shoe law firms, and then it is time to move on and maybe they want to make more money and it is time to send their kids to private school and it seems very normal for them to distribute another job in the private sector for millions of dollars potentially. many of them -- some are making $5 million per year, so -- brian: well, they were. the government salary is $100here between $150,000.nd sheelah: they are still respectable salaries, but because you're living in new york city, surrounded by all means fancy wall street people all the me, it does not em like a lot of money. it does nogo that far. they have the fancy ivy league law applications and they could make a lot more money than that and government work is very exhausting, too. it takes a huge toll. brian: you write it is almost impossible to prosecute corporate criminals who operates at the highest levels. sheelah: so this is where i think the story is actually

really important from a policy perspective, because here we are and almost no senior executives were charged with crimes related to the financial crisis. no one went to jail for that of any relevance. you can say thing about the insider trading stuff. the hedge fund manager did go to jail but they did not get a lot of people and now, we have this new era in washington where we have a lot of wall street financiers and president trump's cabinet and his main message to wall street so far is that he is going to cut taxes and gut financial regulation, so i think it is an area of concern. i think people need to think about it and i think this is an important reminder of why intelligent regulation is really important, why it is important to prosecute fraud and crime in the white-collar world and you know, if you do not do that, you end up with a system that is favoring the extremely wealthy and well-connected and leaving everyone else outside and it is not a fair, transparent system.

brian: michael steinberg, the idea of being arrested by the fbi, how did he do this? by the way, where is he today? sheelah: his conviction was overturned, so he is a free man and -- brian: is he trading? sheelah: i actually do not know. he was looking into alternate careers last i heard. he was very wealthy, so he can do a lot of different things. you know -- brian: how did the arrest go by? sheelah: the fbi was arresting a lot of people during the period -- guys.of fancy hedge fund brian: and he worked for sac? sheelah: he was working at the time he had been arrested. and the fbi really made a point -- often, these hedge fund defendants who have is very high-priced, smart lawyers, they would say, you know, they would kind of know they were possibly going to be arrested and they would call up the prosecutors

and say, well, can we just come in voluntarily? and the fbi was very adamant that they did not want to treat these hedge fund defendants any differently from a drug dealer or petty criminal, because those people do not have the luxury of having their white-collar lawyer call up and walked them in in a civilized fashion, so the fbi kind of made a point of busting in the doors of these hedge fund guys and there is a sort of very tense scene in the book where michael steinberg knows, is tipped off he's going to be arrested, and he returns to manhattan from the family vacation in florida, and he gets dressed and at 5:00 in the morning, he is sitting in his park avenue apartment with his

attorney and just waits because he knows they are coming. and sure enough, right on cue, bang, bang, bang fbi. and they came in and arrested him. brian: where did they take him? sheelah: central processing, a building in lower manhattan. he gets finger-printed and arrange. brian: they put handcuffs on him? sheelah: they did. there was a wall street journal reporter who had been tipped off about the arrest and she stood on the street and videotaped it with her phone, and that video got played on the internet, so it was very humiliating for him, and considering the fact that his conviction was later overturned, you can understand why he would be very upset about this. brian: how long have you worked for the new yorker? sheelah: since july. right before that, i was a writer at bloomberg businessweek. brian: when you look at this book, what were the important moments for you or people or devices for you to be able to write this book? sheelah: interesting question. well, personally, i found it fascinating to get to kind of go

inside an investigation like this. i have never become so deeply enmeshed in an fbi, sec criminal prosecution the way i was able to in this book. i saw the whole process and all its flaws. brian: were you there with bj kang when he was listening to the phone calls? sheelah: no, but i was able to relive it all through my reporting. brian: how close did you get to the whole story? did people let you and behind the scene? sheelah: you will have to read the book and judge yourself. it felt like that to me. brian: let us go back to the question. what was the, you know, who shined the light the most from your standpoint or who was the best character in the bo? i hate to use that term, but who was the hero for you? as the public looks at it, who should they say, "that is who i trust." guest: that is an interesting

question, tough one. [laughter] sheelah: i don't know if i would boil it down to a matter of heroes or not. even the people you would typically think of as may be the heroes, like the fbi agents, were flawed. they did something's wrong. they certainly, you know, they were overaggressive at different points. you could say. some peoples lives got completely wrecked kind of for nothing at the end. for some reason i feel the investigators, they are the unsung heroes. they do not usually get a lot of public glory and they are doing a lot of difficult work of just regulating and moderating the securities markets and we live in a world where everyone has money in the stock market. we all have retirement money in the stock market, so -- brian: these hedge funds affect the average person investing in the stock market?

sheelah: they absolutely do. because we are all in there, our futures are tied up in the stock market and increasingly, we have two big markets. we have the market for the wealthy, well-connected, sophisticated vestors like hedge fund traders, and the one for everyone ee. ian: one personal question before we are out of time. are you marrd? sheelah: yes. brian: do you have a family, kids? sheelah: yes, yes. can i ask why you are asking this? [laughter] brian: i always ask these questions. sheelah: ask me again, then. nine and five. no one has ever asked me that before. brian: i don't want to know any more. i don't want to know where you live or anything like that. sheelah: no one has ever asked me about them during an interview. that is fine. brian: the name of the book is "black edge." on the cover is a shark wrapped in money. what is that from? sheelah: it is inspired by a sculpture that cohen is famous for owning.

in a damien hirst sculpture of a sharks is amended and formaldehyde. he paid $8.5 million for it. brian: "inside information: dirty money and the quest to bring down the most wanted man on wall street." thank you. sheelah: thanks. ♪ [captions copyright national cable satellite corp. 2017] for free transcripts or to give us your comments about this program, visit us at q&a.org. q&a programs are also available as c-span podcasts.

announcer: if you enjoyed this we's "q&a" interview, here are some other programs you might like. leslie and andrew cockburn talking about their documentary "american casino," on subprime mortgages. mclean's 2005 interview on the investigation of enron. and gretchen morgan said discussing her book, reckless endangerment, how outside ambition, greed, and corruption created the worst financial crisis of our time. you can watch these anytime or search our entire video library at c-span.org. announcer: this week is c-span's anniversary week. 38 years ago on march 19, 1979, the house of representatives opened its debates to tv cameras for the first time, and the cable television industry launched

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censorship. every word is available for broadcast coverage. journalists will be able to use and edit as they see fit. the solution for the lack of confidence in government, mr. speaker, is more open government at all levels. i hope, for example, that the leadership of the united states senate will see this as a friendly challenge to begin to open their own -- >> the gentleman's time has expired. >> the marriage of this medium and our open debate has the potential, mr. speaker, to revitalize representative democracy. announcer: and in 1986, the cable industry launched c-span2 to carry the senate live. all of our congressional coverage is broadcast live, archived, and searchable for free at c-span.org. c-span tv, radio, and online are provided as a public service of our cable and satellite affiliates across the nation.

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