SAC Was Rabbi’s Shakedown Target

Feb 22 2010 | 11:07am ET

SAC Capital Advisors was the target of a blackmail scheme allegedly cooked up by a prominent New York rabbi.

Milton Balkany was charged Thursday with attempting to extort $4 million from a hedge fund, which was not identified in the criminal complaint. But published reports indicate that the hedge fund in question was SAC, and that the Stamford, Conn.-based firm cooperated with investigators to nab the rabbi.

According to prosecutors, Balkany warned SAC that an inmate he was counseling claimed that he had information implicating SAC in insider-trading of six securities in 2004 and 2005. He allegedly promised the hedge fund giant the unidentified inmate’s silence in exchange for a pair of $2 million to two schools, including Bais Yaakov in Brooklyn, N.Y., where Balkany serves as dean.

In transcripts of several phone calls recorded by SAC and investigators, Balkany warned that subpoenas were inevitable. In a conversation with a federal agent posing as SAC’s president, he assured that if the payments were made, “you can go to sleep completely comfortable, without any worry.”

A few weeks later, SAC’s real general counsel delivered him two checks totaling $3.25 million. A few hours after Balkany tried to deposit those checks, he was under arrest.

He has been charged with wire fraud, extortion, blackmail and making false statements, and was released on $250,000 bail. If convicted, the rabbi faces up to 20 years in prison.

At a hearing on Thursday, Balkany called the government’s allegations “ridiculous.”

According to the transcripts, Balkany indicated that his concern was for a “co-religionist”—SAC founder Steven Cohen is Jewish—who he did not want to see get hurt. During the “negotiations” with the faux SAC executive, Balkany assured that he was “not here to threaten” and was not “a holdup man,” but said of the $4 million he sought, “I don’t consider it a lot of money.” Especially since, as he pointed out, an insider-trading case could cost SAC tens of millions of dollars.

Balkany has been a major political fundraiser, primarily for Republican candidates, including former New York Mayor Rudolph Giuliani and former President George Bush.  He’s also no stranger to federal cases, having been charged with misappropriating $700,000 in federal grants in 2003. Those charges were later dropped as part of a deferred prosecution agreement that required him to show “good behavior” for six months.


In Depth

Q&A: Filippo Pignatti Morano On The Ultimate Alternative Investment...Classic Cars

Jan 29 2015 | 12:37pm ET

In 2011, Filippo Pignatti Morano launched a fund to invest in classic cars. FINalternatives...

Lifestyle

Looking For A Hedge Fund Manager? Try Davos

Jan 28 2015 | 8:48am ET

Davos, Switzerland seems to have become the hedge fund capital of the world—at...

Guest Contributor

Five Tips For Successfully Marketing Your Hedge Fund

Jan 30 2015 | 9:14am ET

When it comes to the hedge fund industry, the notion of “build it and it will...

 

Editor's Note