Building a billion-dollar hedge fund twice

Steve Cohen built one of the most successful hedge funds in history from his dorm room. He turned insider trading scandals into a comeback story and amassed over $17 billion. As the founder of Point72, Cohen's aggressive trading style and risk-taking have made him one of the best traders on Wall Street.

This week, we break down Cohen’s career, the insider trading scandal that almost ruined him, and how he built Point72 into a $34 billion hedge fund:

• 💼 Turning $10,000 into a $34B hedge fund

• 💥 The scandals of insider trading

• 📈 His comeback and creating Point72

— Investor Briefcase Team

Steve Cohen started trading options from his dorm room at the University of Pennsylvania. He spent hours studying stock charts, fascinated by the patterns of price movements and started trading options with a $10,000 investment from his father.

After graduating in 1978, Cohen landed a job at Gruntal & Co., a mid-sized brokerage, where he joined the options arbitrage division. His ability to process market data in real time, execute high-speed trades, and capitalize on short-term price movements made him one of the firm’s top traders. Within just six years, he was managing a $75 million trading portfolio and generating over $100,000 in daily profits.

By his late 20s, he was earning millions in personal bonuses from his trading performance. Cohen developed a reputation for staying glued to his trading screens, making split-second decisions that often paid off. But despite his success, Cohen grew frustrated with the firm’s limitations. He wanted more autonomy, the ability to take larger risks, and a bigger cut of the profits.

After 14 years as a trader, he left to launch his own firm, SAC Capital Advisors with $25 million in seed capital. His strategy focused on high-frequency trading and leveraging a network of analysts and industry insiders to gain an edge. Within a decade, the fund was managing billions and delivering annualized returns of nearly 30 percent.

By the late 2000s, SAC Capital had become one of the most powerful hedge funds on Wall Street, managing over $14 billion. The firm was famous for its rapid-fire trading strategies, with Cohen reportedly overseeing multiple traders at a time and demanding information at a relentless pace. However, with the firm’s success, it started to draw attention from regulators who began investigating its trading activities.

The investigation into SAC Capital began in 2009 when authorities cracked down on insider trading across hedge funds. The most high-profile case involved former SAC trader Mathew Martoma, who was under investigation for securities fraud. Martoma allegedly received confidential drug trial results from a doctor at the University of Michigan before the information was public. Based on that data, SAC made trades in pharmaceutical stocks that generated $276 million in gains and avoided losses.

In 2013, SAC Capital pleaded guilty to insider trading charges and agreed to pay a $1.8 billion fine, one of the largest penalties in U.S. history. While Cohen was never personally charged, the scandal forced him to shut down SAC Capital and transition to managing only his personal fortune.

Cohen maintained that he never knowingly engaged in insider trading, but emails showed he approved some of the transactions in question. Despite avoiding personal criminal charges, the SEC banned him from managing outside capital for five years. The case exposed the thin divide between aggressive trading and illegal activity. Many believed his days of running a major fund were over, but Cohen had other plans.

Sponsored by Analytica

Diversified Crypto in One Stock – 60+ cryptocurrencies, one investment.

Gain exposure to 60+ cryptocurrencies in a single stock. DeFi Technologies (CBOE: DEFI OTC: DEFTF) offers broad access to the $3T crypto market—without the complexity of wallets or exchanges.

Invest today.

Rather than walking away from finance, Cohen turned SAC Capital into a family office, rebranding it as Point72 Asset Management in 2014. Initially, the fund only managed Cohen’s personal wealth, but behind the scenes, he was preparing for his return.

Point72’s strategy was built on the lessons Cohen learned at SAC. He focused on a multi-strategy approach, combining high-frequency trading and AI-driven investment models. The firm also expanded into private equity and venture capital, aiming for a broader and more institutional-friendly structure that steered clear of the risks that led to SAC’s downfall.

When Cohen’s ban on managing outside capital expired in 2018, investors poured in billions, betting on his ability to generate returns. By 2024, Point72 had grown to $34 billion in assets, more than doubling the size of his former hedge fund and reestablishing itself as one of Wall Street’s largest firms.

Point72’s trading strategy blends the instincts of elite traders with AI algorithms. Cohen has heavily invested in machine learning technology, using large datasets to detect market inefficiencies and refine trading decisions. The firm runs multiple high-conviction positions across sectors while focusing on arbitrage strategies that take advantage of volatile tech stocks that fall or spike in value based on news.

In 2020, Cohen purchased the New York Mets for $2.4 billion, applying the same aggressive mindset he used in finance. He overhauled leadership, expanded payroll, and pursued marquee signings to turn the team into a championship contender. From near collapse at SAC Capital to dominating markets once again with Point72, Cohen has proven that no matter the odds, he finds a way to stay on top.

More Stories
Other Notable Insider Trading Scandals

> Raj Rajaratnam: Founder of the Galleon Group hedge fund. Convicted in 2011 for orchestrating one of the largest insider trading schemes in history, Rajaratnam used a network of corporate insiders to gain illicit profits, resulting in an 11-year prison sentence.

> Martha Stewart: Television personality. Stewart was convicted in 2004 for obstruction of justice and conspiracy related to her sale of ImClone Systems stock based on non-public information. She served five months in prison.

> Ivan Boesky: Wall Street arbitrageur in the 1980s. Boesky amassed a fortune through insider trading and became infamous after being caught in the scandal that led to the creation of the 1988 Insider Trading Act. He cooperated with authorities, leading to a reduced sentence.

> Jeffrey Skilling: Former CEO of Enron. Skilling was a key figure in Enron’s fraudulent accounting practices, which misled investors about the company’s financial health. Though not a traditional insider trading case, his role in securities fraud led to a 24-year prison sentence.

> Michael Milken: “Junk bond king” of the 1980s. Milken, a high-profile financier, pleaded guilty to securities fraud and insider trading, serving nearly two years in prison. He later became a philanthropist and received a pardon from President Donald Trump in 2020.

Each week we profile the most notorious investment stories.

Got an idea for a story? Email us at [email protected]