Before the billions in personal wealth, the Jeff Koons sculptures, the mansion with its own hockey rink, and the withering scrutiny of the Securities and Exchange Commission, SAC Capital founder Steven Cohen made his name as a trader at a firm called Gruntal & Co. It had a rocky history, to say the least.
Gruntal went out of business in 2003. But when Cohen joined the small brokerage house in 1978, it was on the brink of a lucrative run, eventually growing through the bull market of the 1980s to become the 14th largest brokerage in the country, with more than 30 locations and hundreds of employees.
Cohen graduated from the University of Pennsylvania, where he was known as a skilled poker player, and became a proprietary trader in the option arbitrage department at Gruntal. On his first day, he earned an $8,000 profit, according to a 2003 Businessweek article, and quickly started making $100,000 per day or more. According to court papers filed by his first wife, Patricia, in their divorce, Cohen’s compensation at the time consisted of 30 percent of the profits he generated, a cut that grew to 50 percent in 1981. A few years later, in 1985, Cohen was given more responsibility and put in charge of his own group of traders. By all accounts he thrived, minting money for himself until he founded SAC Capital in 1992 with $25 million, around half of it his own capital. His fortune only grew from there.
Gruntal & Co. didn’t fare so well, developing a reputation for disregarding securities laws. While the company was under the control of Howard Silverman, from 1974 to 1995, Silverman’s two sons operated a firm that cleared all of Gruntal’s trades for the New York Stock Exchange, according to Fortune. In 1988 a Gruntal broker was criminally charged with insider trading pertaining to the takeover of the Waldbaum’s supermarket chain. In 1996 the SEC accused a group of Gruntal employees of embezzling $14 million, and the firm was required to pay $6.2 million in fines and $5.5 million to restore customer losses. Around the same time, a former Gruntal trader was convicted of securities fraud, allegedly for paying kickbacks to an outside portfolio manager in exchange for his trading business. In 1991, another Gruntal broker was charged with insider trading in his personal account, and a few years after that, in 1997, the firm paid $750,000 in what was then one of the largest settlements of a sexual harassment lawsuit, filed by six current and former female employees. To name a few.
The company was like the Wild West, with employees carving out niches for themselves and running them like mini-fiefdoms, according to former employees. It did not have polish. When Gruntal was based on Wall Street, in downtown Manhattan, “they had a huge ventilator in the middle of the room, blowing the air around, and a dirty, gross carpet,” recalls Don Jans, who was an institutional bond salesman at the company in the 1990s. “I remember going to visit the office and seeing this trader-girl, in a muumuu, talking on the phone,” Jans says. “She was eating a cheese Danish with one hand and smoking a cigarette in the other.” All the while, Gruntal was in a state of turmoil, with ownership changes and no strong management in place paying attention to what was going on.
Robert Rittereiser, the former head of E.F. Hutton, became chief executive of Gruntal in 1995, and he rode it to its untimely end. His assignment was to clean the firm up and try to sell it on behalf of Zurich Financial Services, which had come to own a significant stake. The culture gradually grew more cautious, and “run it by legal” became the guiding philosophy. “They were so afraid of making a mistake, they never took a gamble on anything,” says Leo Abbe, who left Gruntal in 2000 and now works at Iroquois Capital Management. “On Wall Street—come on, if you’re not willing to make a bet on something, you’re never going to make any money.”
Rittereiser scrambled to find a buyer for Gruntal—one deal with Prudential collapsed with the attacks on the World Trade Center, which almost destroyed Gruntal’s offices. He ultimately unloaded most of the business in 2002 to Ryan, Beck & Co., an investment house based in New Jersey. Whatever remained of the company filed for bankruptcy not long after.
Cohen had left long before the cleanup began. “I feel like I’ve kind of maxed out at Gruntal,” Cohen told someone in 1991, right before he left, according to a 2010 Vanity Fair profile. “Tell me about this hedge fund thing.”