Government officials spent years investigating Steven Cohen’s financial empire. Illustration by Ben Jones; Source: Scott Eells / Bloomberg / Getty (face)

One day in early 2013, Preet Bharara, the U.S. Attorney for the Southern District of New York, met with his deputy, Richard Zabel, about one of the biggest cases of his career—a crackdown on insider trading in the hedge-fund industry. Although the financial crisis had receded, popular rage against Wall Street bankers and traders was still strong; most Americans had seen their incomes stagnate while the fortunes of the wealthiest continued to swell. For the previous few years, Bharara and the prosecutors who worked under him at the Southern District, along with investigators at the Federal Bureau of Investigation and the Securities and Exchange Commission, had been studying phone logs, wiretapping traders’ calls, and flipping witnesses, one after the other, as they worked their way deep into some of Wall Street’s most profitable hedge funds. Bharara was now considering a criminal indictment of Steven A. Cohen, the founder of a fourteen-billion-dollar hedge fund called S.A.C. Capital Advisors.

Cohen was a captivating figure on Wall Street. He was not the sort of investor who, like Warren Buffett, took a large stake in a company and held it for years, immersing himself in how the business worked. He was a short-term speculator, who had built a vast personal fortune by placing high-volume bets on small movements in stock prices; he was often driven by earnings announcements and other such events, and maintained high returns, against the odds, year after year. He was short and thick, had a fierce mind and a quick temper, and he lived in a thirty-five-thousand-square-foot mansion in Greenwich, Connecticut. A passionate art collector, he would spend a hundred million dollars or more on a single work.

Zabel and Bharara had had multiple conversations about the case, and the time had come to decide how they were going to proceed. The two men were often in agreement about how to approach their cases—Bharara has called Zabel “my consigliere and my closest friend”—but Bharara relied on him especially for his insight into white-collar opponents and their highly compensated defense lawyers. In fact, Zabel had more in common with rich Wall Street defendants than he did with Bharara.

Bharara, the son of a pediatrician, immigrated to the United States from India as a young child, grew up in New Jersey, and moved swiftly through Harvard, Columbia Law School, and, eventually, into the office of Senator Charles Schumer, of New York, where he spent four years as chief legal counsel for the Senate Judiciary Committee. For Zabel, by contrast, the hedge-fund industry was native ground: his father was a founder of Schulte, Roth & Zabel, an immensely successful law firm that served hedge-fund clients. Many on Wall Street saw Zabel as one of them. One prominent fund manager, whose company had been investigated by the U.S. Attorney’s Office, recalled many bitterly competitive rounds of squash with Zabel, and was convinced that they had led to ill will between them. Like others in the hedge-fund world, he felt that his industry was being unfairly persecuted by government officials who were overly aggressive in advancing their cases.

Bharara, having amassed dozens of guilty pleas and convictions for insider trading, had come to enjoy the feeling of winning, and was not inclined to file ambitious cases unless he was confident of victory. He had just brought insider-trading charges against two S.A.C. employees: Michael Steinberg, a high-level portfolio manager who was close to Cohen, and Mathew Martoma, a former portfolio manager, who had made enormously profitable trades in two pharmaceutical companies, Elan and Wyeth, before Cohen fired him, in 2010. In both cases, it appeared to Bharara and his colleagues that Cohen had made money trading stocks on the basis of inside information that Steinberg and Martoma provided.

Bharara had to decide if his office was going to bring criminal charges against Cohen as well. Putting a legendary hedge-fund manager behind bars would send a strong message to the industry, and show the public that the Justice Department could take on one of the most powerful men in finance. Yet mounting a trial against such a prominent defendant, who had billions to spend on his defense, was daunting. It would be helpful to have an idea of what the prosecutors were up against.

It was not uncommon for prosecutors to meet with the attorneys of a prospective defendant, giving them a chance to present their side and try to talk the prosecution out of filing a case. Now Bharara and Zabel agreed that it was time to bring Cohen’s lawyers in and hear what they had to say.

The eighth-floor conference room at 1 St. Andrew’s Plaza, the home of the Manhattan U.S. Attorney’s Office, is the largest one in the building. But even its ample capacities were tested on the morning of April 25, 2013, when men and women in dark suits began streaming in for the meeting between prosecutors and Steven Cohen’s lawyers. Bharara did not attend, but Zabel did, and he took a seat at the center of the “government” side of the long table. On either side of him were federal prosecutors, the securities-unit chiefs, the head of the asset-forfeiture unit, and the leader of the office’s criminal division, along with several F.B.I. agents and S.E.C. lawyers. Someone had to get extra chairs from down the hall.

On the other side of the table sat Cohen’s main defense attorney, Martin Klotz, looking slightly dishevelled. Klotz, who was the senior counsel at Willkie, Farr & Gallagher, had been Cohen’s, and S.A.C.’s, outside legal adviser for more than a decade. He had also spent time as a prosecutor, in the late nineteen-eighties, had a Ph.D. in philosophy from Yale, and was known for his courtly demeanor and his reluctance to raise his voice. He was accompanied by a colleague from his firm and three partners from Paul, Weiss. Theodore Wells, a star trial lawyer at Paul, Weiss, was also in attendance. He didn’t speak, but the implication was clear: if this case reached a courtroom, Wells, whose closing statements were so powerful that he sometimes brought himself to tears, would be the government’s adversary.

Klotz led the presentation. He and Cohen’s other attorneys came prepared to target the prosecutors’ fear of losing a big case. Every member of the defense bar knew that the government’s calculations were based at least in part on risk assessment and vanity. The aim was to get the prosecutors to think hard about what it would be like to suffer a humiliating defeat at trial.

A Willkie associate distributed a black binder to everyone in the room. Klotz looked out at the crowd of faces. “Thank you all for giving us this time to come and talk to you today,” he said.

The government’s case relied on an e-mail that Michael Steinberg had received from his analyst, Jon Horvath, who was now coöperating with the prosecutors. Horvath had obtained inside information about the computer-manufacturing company Dell from a friend at another hedge fund, and had shared it with Steinberg. (Horvath pleaded guilty to insider trading in 2012, but charges against him were dropped before sentencing, in 2015.) The source predicted that Dell would miss the estimates most investors were expecting. “I have a 2nd hand read from someone at the company—this is 3rd quarter I have gotten this read from them and it has been very good in the last two quarters,” Horvath wrote on August 26, 2008, two days before Dell publicly announced its quarterly earnings. To a layperson, it wouldn’t have made much sense, but to sophisticated Wall Street traders it meant that the information about Dell’s as yet nonpublic earnings had come from someone inside the company who had provided valuable information in the past. The e-mail was forwarded to another portfolio manager at S.A.C., and, eventually, to Cohen. Shortly afterward, Cohen began selling all five hundred thousand of his Dell shares. On August 28th, Dell made its earnings announcement: it had indeed missed the estimates, and its stock fell. Cohen avoided a loss of $1.7 million.