Exclusive: Watch Billionaire Steven Cohen Stumble Over Insider Trading Rules

Coming this winter, FRONTLINE correspondent Martin Smith (The Untouchables, The Retirement Gamble, Money, Power and Wall Street) and producer Nick Verbitsky examine how prosecutors have set their sights on the hedge fund industry. In the process, they’ve dug into the operations and mind-set of billionaire hedge fund manager Steven A. Cohen.

In a never-before-published video, hedge fund titan Steven A. Cohen, whose firm this week agreed to plead guilty to securities fraud, describes federal securities laws as “vague,” and asks for an explanation of the basic Securities and Exchange Commission rule that prohibits insider trading.

Under questioning in a video deposition obtained exclusively by FRONTLINE, Cohen is asked whether he is familiar with Rule 10b5-1.

On Monday, SAC Capital, the firm that bears Cohen’s initials, agreed to pay $1.2 billion in fines and plead guilty to what prosecutors described as insider trading “on a scale without any known precedent in the history of hedge funds.”

Cohen, who was not charged personally by federal prosecutors, is facing charges in a separate S.E.C. investigation alleging he failed to supervise his employees and prevent misconduct under his watch.

In the video deposition, which was taken as part of a 2011 civil suit, Cohen describes his firm’s trading rules as “general guidelines” and says that he gives his traders latitude to use their judgment when making deals.

This excerpt begins with attorney Michael Bowe reading a portion of SAC Capital’s compliance manual to Cohen.

The video offers a rare glimpse of the secretive billionaire investor at the center of the biggest insider trading prosecution in U.S. history talking about the very issues that have put him and his firm under such intense scrutiny.

The two-day deposition got testy at times.  At one point, a combative Cohen insists that he takes the issue of insider trading “very seriously,” but then admits that he doesn’t remember if he’s read Rule 10b5-1. “I rely on my counsel,” he says.

Cohen is also asked by Bowe whether he would be comfortable trading on a tip from a reporter about an imminent negative news story. As you can see, he struggles with his answer.

The deposition was part of a civil lawsuit by Canadian insurer Fairfax Financial Holdings, which claimed that SAC Capital had conspired with other hedge funds to spread false information in an attempt to drive down Fairfax’s stock price.  A judge later dismissed the suit, but that decision is currently under appeal.

The transcripts of the deposition have been previously published by Bloomberg and Reuters.