Hedge fund legend Steven Cohen is emerging from a long federal investigation of insider trading with his freedom and fortune intact, but his reputation in tatters.
Cohen has not been indicted for any criminal offenses, but his hedge fund, SAC Capital Advisors, pled guilty last year to insider trading, and eight people who worked for Cohen have been convicted at trial or pled guilty to charges of insider trading.
So what do you do if you're a disgraced billionaire with more money than all but three of the largest foundations in the United States? Well, maybe you start acting like some of those big foundations—setting out on a long journey to slowly donate your way back to respectability.
That's what Michael Milken did. Over the past quarter century, Milken has gone from being the most high-profile white collar criminal of his time to a top leader in philanthropy, especially on issues of education, medical research and public policy.
Because Cohen hasn't been indicted for any crimes and is much richer than Milken, his chances at redemption are far better. And my prediction is that he'll be stepping up his philanthropy in coming years, with more high-visibility initiatives and gifts. Given the size of his fortune, which is nearly three times the endowment of the Rockefeller Foundation, this is a funder worth watching super closely—especially if you work in the arts, children's health, or education.
Just to be clear: I'm not saying that Steve Cohen has only become interested in philanthropy as a result of his legal problems. On the contrary, Cohen and his wife Alexandra have taken their giving very seriously for well over a decade, establishing a family foundation back in 2001, and making tens of millions of dollars in gifts over the years to a wide range of nonprofits. In 2010, before the insider trading investigation of SAC ratcheted up, the foundation gave out around $35 million. In 2012, it gave out $43 million.
These are big numbers for a family foundation with minimal staff. And they're big numbers, too, for a finance guy who's still in the middle of his career. You can see an overview of the giving on the foundation's website.
Michael Milken had also been involved in philanthropy for many years before he ran into legal problems. And it's likely that even if Milken hadn't seen his reputation demolished, he would still have ended up as a major philanthropist. But the derailing of his career gave Milken both a greater incentive to ramp things up and more time to focus on philanthropy.
I think something similar will hold for Cohen. In the absence of the insider trading scandal, Cohen would still likely have ramped up his giving in coming years, following the trajectory already set over the previous decade. (Also, what else are you going to do with that much money?)
Now, though, the situation has changed. Cohen is off the finance fast track, with his hedge fund downsized to a family office that only manages his personal wealth in the wake of its plea agreement with the federal government. It seems inevitable that Cohen will now find himself with spare bandwidth for other things, and he has long been interested in philanthropy, along with collecting art. As we've observed often, finding the time and energy tend to be big obstacles to accelerated giving by the mega rich, and Cohen presumably will now have more of both.
Also, it is simply true that well-deployed money can help repair damaged reputations and, quite apart from Mike Milken, there's a long history of philanthropy being used this way—going back to John D. Rockefeller. Giving is especially useful for wooing elites, since big gifts to key institutions can earn great appreciation from boards of trustees stacked with well-connected power players who can spread the word that so-and-so is A-OK. And high-minded projects can help rebrand somebody from, say, a greedhead to a renaissance man.
Anyway, the details of federal investigations tend to get hazy as events recede in the rearview mirror—whereas names etched on museums, hospitals, think tanks or university buildings remain forever clear.
If Steve Cohen does decide to rev up his philanthropy on all cylinders, what might we expect? Here at IP, we've been digging into Cohen family giving for the past week or two, and can share a few things to know:
1. Children's health is a top concern
Steve and Alexandra Cohen have given their biggest money for children's health and pediatric medicine, with major gifts to hospitals in their regions. We look here at why they're so concerned with this area. As for how it might play out in the future, it's easy to imagine giant, splashy gifts to area hospitals, or serious national or even global giving to improve children's health writ large.
2. Art is a Deep Passion
The Cohens have one of the top private art collections in the world, and have given big to MoMA and other New York museums. Cohen also recently branched westward to join the board of the Museum of Contemporary Art (MOCA) in LA, where his foundation gave a $1.2 million gift in 2012. Stepped-up giving in this area could take the form of some giant, headline-making gifts to one of the institutions the Cohens back, or maybe something more creative.
3. The Cohens Are Way Into Education
It seems hard to find a finance guy who doesn't support charter schools these days, and Steve Cohen is no exception. The Cohens have given millions of dollars for charter schools in Connecticut, and also given money to other ed organizations, such as the Harlem Children's Zone. Compared to other givers in this space, though, Cohen support has been modest and the couple has yet to put truly big money into national charter networks or leading ed reform groups. So there's lots of room here to scale up their giving.
4. Alexandra is a key leader
Big-time philanthropy is nearly always a joint endeavor for a couple, no matter who made the money, and that's true in this case. Cohen's wife, Alexandra, grew up in Washington Heights in New York City, and her background and interests have especially informed the couples' giving on education and health. If the Cohens ramp things up in a big way, look for Alex to be a key leader in this effort.