Shopping with Steve
What's motivating the SAC Capital founder's investments in some of NYC's glitziest real estate?
SAC Capital Advisors founder Steven Cohen is at the center of one of the biggest insider-trading cases ever.
And the 57-year-old hedge-fund king — reports put his worth at $8 billion to $9 billion — is also making history in the real estate market.
In March, the same month his now-notorious firm agreed to pay a $616 million fine for insider trading, Cohen bought a seven-acre property at 52 Further Lane in East Hampton for $60 million, one of the highest home prices ever paid on the East End. And Cohen’s Beacon Court penthouse in Manhattan is on the market for $115 million, which would set a new record if it fetches that price.
April brought two Cohen buys: a $39 million building on Perry Street in the West Village, which he plans to renovate, and a $23.4 million maisonette at the newly converted Abingdon condominium at 607 Hudson Street.
Cohen’s buying and selling extends into the art world: He laid out $150 million, again in March, for Pablo Picasso’s “Le Rêve,” and has been quietly offering several pieces from his prodigious collection, which includes works by Jasper Johns, Andy Warhol and Jackson Pollock.
All this comes just as the Securities and Exchange Commission completes a years-long investigation of allegations of insider trading at SAC. Last month, the SEC filed civil charges against Cohen that accuse him of failing to prevent insider trading at his company. Five days later, the Manhattan U.S. Attorney’s Office charged SAC with four counts of securities fraud and one count of wire fraud, related to insider trading and allegedly laundering the profits.
From the start, Cohen has maintained he has done nothing wrong and has vowed to fight all the charges against both him and SAC Capital. He declined to comment for this story.
The timing of the purchases, though, has made Cohen’s motives the subject of intense speculation. Sources told The Real Deal that Cohen could be investing so heavily in art and real estate to shield his assets from the government.
The buying begins
The son of a garment worker and a part-time piano teacher, Cohen left his native Long Island in 1978 for the University of Pennsylvania, then went to work as a trader at boutique investment bank Gruntal & Co.
Gruntal, as it turned out, was a perfect milieu for Cohen, who would later be at the forefront of technology-driven trading. Gruntal featured one of the first so-called prop trading desks, and Cohen was its star. In the 1980s — a famously bullish time for American stock markets — Cohen’s desk made a reported $33 million a year (a lot of money in the days before hedge funds and electronic trading were ubiquitous). In 1991, while Gruntal struggled under the cloud of junk-bond scandals, Cohen made an auspicious exit, starting SAC Capital with about $20 million of his own money, and eventually growing the firm’s assets to about $15 billion.
Along the way, Cohen met and married Patricia Finke. They stayed together for 11 years and had two children before divorcing. He met his current wife, Alex Garcia, on an online dating site. They have four children together.
In the last 10 years, SAC was reportedly one of many companies that relied on so-called expert network firms, which feed information to funds for a fee. Some of that information, the SEC has alleged, is what is called “material non-public information.” Paying for MNPI constitutes insider trading.
In 2007, the SEC began scrutinizing the trades of SAC and other firms that used these expert networks. Since then, four current or former SAC employees have been criminally charged with insider trading, and two of them have pleaded guilty. SAC itself agreed to the $616 million fine, most of which Cohen will be paying out of his pocket, experts said, because he owns 100 percent of the hedge fund’s “management fund,” which is on the hook for the money.
But for Cohen personally, the years-long investigation came to a head last month, when the SEC filed civil charges against him, in an unexpected move. The SEC alleges Cohen failed to properly supervise two of his portfolio managers who traded on information not available to the public.
The civil charges and even the indictment of SAC are widely viewed as evidence that authorities did not have sufficient evidence to file criminal charges against Cohen himself.
“It’s kind of scraping the bottom of the barrel,” said securities attorney Bill Singer of the charges.
And fines levied against Cohen probably will be in the six figures, a drop in the bucket of his vast fortune, Singer said.
Still, Cohen could be banned from trading from six months to life. And SAC’s indictment could still spell doom for his hedge fund.
Cohen has a history of making big purchases — and sales — when trouble looms. When the SEC’s investigations into SAC became public in 2011, Cohen auctioned off an Andy Warhol painting of actress Elizabeth Taylor for $27 million, and reportedly picked up $300,000 in fine art at Miami’s Art Basel in just five minutes.
In March, the month that SAC agreed to pay the fine, Cohen shocked the Hamptons real estate world by shelling out $60 million for investment banker Robert McKeon’s Further Lane mansion in East Hampton, a sale brokered by Sotheby’s Ed Petrie. The deal is the most expensive home sale in the Hamptons since 2008, when an oceanfront spread at 104 Gin Lane in Southampton sold for $60 million.
Cohen’s new, 10,000-square-foot oceanfront home is just down the road from another house he owns — also on exclusive Further Lane. That property, which he bought in 2007 for $14.8 million, figures prominently in Cohen’s response to the civil case against him, which is already being called the “Hamptons pool defense.” Cohen’s lawyers say he was at his Hamptons home on the day in 2008 when an improper trade of Dell stock by one of his employees took place.
The view at Cohen’s first Further Lane home is reportedly blocked by the home of fellow hedge funder James Chanos. At Cohen’s new property, he’ll be able to gaze unimpeded at the Atlantic. Petrie did not return calls for comment, but a source with knowledge of the deal said the estate was on the market for less than a week before Cohen snapped it up; a listing price was not made public.
Cohen plans to tear down the existing house and rebuild, brokers said, and is expected to sell the first Hamptons home once construction at 52 Further Lane is complete.
Cohen’s big-ticket purchase is viewed as something of an outlier in the Hamptons, where sales in that price range have been rare since the recession. But that hasn’t stopped wealthy sellers from trying. Just a month after news of Cohen’s purchase, Courtney Ross, widow of the late Time Warner honcho Steven Ross, listed an estate at 20-30 West End Road in East Hampton for $75 million. And just last month, actor Richard Gere put his 6.3-acre estate in North Haven on the market for $65 million.
Cohen’s willingness to spend top dollar on Hamptons real estate has likely prompted more high-end sellers to put their homes on the market.
“This is putting us back on the stratospheric map,” said Judi Desiderio, founder of Hamptons brokerage Town and Country Real Estate. “It gives a certain percentage of the market comfort that they aren’t in that camp alone.”
Cohen has also made big real estate moves in Manhattan.
In April, he paid nearly $39 million for an apartment building at 145 Perry Street, which has an alternate address of 703 Washington Street, according to records from the Department of Buildings. When complete, the apartment will have numerous fireplaces and “morning and evening terraces,” according to StreetEasy. The LLC that bought the home in city records, Greenwich Heights Corporation, lists SAC’s Stamford office as its address.
Cohen reportedly plans to stay at his newly purchased 9,600-square-foot Abingdon apartment while he renovates the Perry Street pad. He also owns a 30,000-square-foot home in Greenwich, Conn., that has a golf course and a movie theater.
Also in April, Cohen listed his 51st-story duplex at Beacon Court for $115 million with Corcoran’s Deborah Grubman and David Dubin, who declined to comment for this story. Cohen bought the 9,000-square-foot unit for $24 million in 2005.
Sources said the property had been quietly shopped to VIPs last year as well, with a price tag just under $90 million.
Brokers attribute the new, higher price to Manhattan’s red-hot ultra-luxury market; apartments reportedly have been going for more than $90 million in super-luxe new condos One57 and 432 Park Avenue.
“If you are gonna try a new price, this is a market to try it in,” said Shaun Osher, head of residential brokerage CORE.
A mogul’s motives
The volume of Cohen’s latest real estate buys and the way he made them — all through limited liability corporations — have fueled the speculation that he is shielding his assets from the government.
In the criminal proceeding against SAC, Cohen’s assets could be seized by authorities; the U.S. Attorney’s complaint seeks “forfeiture of certain property,” which could mean anything bought with SAC proceeds — even a home in the Hamptons.
With all his troubles, bankruptcy is not out of the question for the billionaire, according to published reports. A source told the Wall Street Journal that the government aims to confiscate about $10 billion from SAC — much of it Cohen’s. In the event of a forced bankruptcy, a trustee would be appointed to liquidate Cohen’s assets and divide them among creditors.
Funds tied up in real estate could help slow that process, industry insiders said.
In particular, moving assets into LLCs — especially those in a spouse’s name — “creates an additional step” before authorities can seize them, said Steven Wagner, an attorney with Porzio, Bromberg & Newman.
Assets passed to an irrevocable trust can be even more difficult to recover. Anything placed to such a trust about a year before any seizure proceedings would be relatively “untouchable,” said attorney Adam Leitman Bailey.
“I would not be surprised if the LLC [that bought 52 Further Lane] is connected to an irrevocable trust for his kids and wife that protects his assets,” Bailey said.
But it’s not foolproof. Cohen is tied to to the real estate deals — the LLC that bought the Abingdon home, Hudson Heights Holdings, listed Cohen’s Connecticut mansion as the address in city records. And given the timing of these purchases, Bailey said, a court could force Cohen to turn over the assets through a procedure called a turnover proceeding.
Still, since no criminal or bankruptcy proceedings have been brought against him as of yet, anything Cohen moves into an irrevocable trust right now “is probably safe,” Bailey said.
Art purchases are an even better way to shield wealth from the SEC, industry experts said. Because it’s difficult to assign value to art, its worth is often a matter of dispute for the Internal Revenue Service, an agency that also becomes involved in seizure of assets, explained art attorney Christine Steiner of Sheppard, Mullin, Richter & Hampton.
And since the market for fine art is notoriously unregulated, the SEC won’t be able to prevent Cohen from buying and selling it.
Much like luxury real estate, the contemporary art world has recovered from the recession admirably, with record-breaking sales fueling speculation that the entire market has become inflated. Now, before a bust, would be a good time to exit those assets as well, sources said.
Besides his April purchase of Picasso’s “Le Rêve,” Cohen in 2010 bought Jasper Johns’ “Flag” for about $110 million, and three years before that, he spent $80 million on Andy Warhol’s “Turquoise Marilyn.”
Even Cohen’s ex-wife has accused him of concealing assets. While his divorce from Finke was initiated more than two decades ago, she is still in the midst of two lawsuits accusing Cohen of fraud for hiding real estate from her during the split. She also maintains that she has evidence of racketeering and insider trading by Cohen; a lawsuit to sort out those accusations is also pending.
Whatever the motive, Cohen’s bevy of purchases show that he’s not ready to give up on investing — even if it’s in real estate and art rather than finance.
“Now, at the end, [Cohen] steps away and has a good laugh,” Singer said. “I don’t think he gives a damn about anything other than ‘how much am I worth today?’”