A phone message deemed sufficiently mysterious might be passed to SAC’s general counsel, Peter Nussbaum, which is how Nussbaum wound up talking last winter to an ultra-Orthodox rabbi named Milton Balkany, who said he had information that was potentially damaging to SAC. The rabbi had, wittingly or not, called on a December day when everyone in Cohen’s orbit was on high alert. The morning’s New York Times featured a story about rumors linking SAC to the government’s investigation of a rival fund, the Galleon Group—which has since blossomed into one of the largest insider-trading probes in Wall Street history. The same afternoon, Cohen’s ex-wife, Patricia, filed a sensational civil suit alleging that he had traded on inside information in the 1980s, while they were still married. (Cohen has moved for dismissal.)

Balkany introduced himself as the dean of a Jewish girls’ school in Brooklyn. He may as well have been calling from another planet—one governed by shtetl values dictating that Jews should accord a high degree of loyalty to each other. The rabbi claimed that, in the course of his work counseling Jewish prisoners, he had learned that the government was pressuring an inmate to give up information about Cohen, and that, as a fellow Jew, he didn’t want to see harm befall the hedge-fund manager, even though they didn’t know each other. It quickly emerged that Balkany wanted something in return—$2 million in cash for his struggling school, Bais Yaakov of Midwood, and a $2 million loan for his former yeshiva, Mesivta Torah Vodaath, one of the oldest and largest of Brooklyn’s ultra-Orthodox high schools. And one more thing: He wanted a 20-minute meeting with Cohen for his son-in-law, an aspiring financier who dreamed of pitching his idol on an investment idea.

The conversation with Nussbaum set off a chain of events that ultimately led to Balkany, a onetime power broker known as “the Brooklyn Bundler,” being found guilty in federal court last month of extortion, blackmail, fraud, and making false statements to a government agent. His trial, in a wood-paneled courtroom in lower Manhattan, played out as a kind of Jewish commedia dell’arte. Balkany, the bearded rabbi, was dressed in customary dark suits accessorized with a black velvet yarmulke. He shared the defense table with a Brooklyn boy made good: the lawyer Benjamin Brafman, a Modern Orthodox Jew who is famous for representing high-profile celebrities like Jay-Z, Sean Combs, and Plaxico Burress. The government’s case was argued by Marc Berger and Jesse Furman, both Jewish and Ivy League-educated assistant U.S. attorneys. In the public gallery, Balkany’s wife and a rotating cast of his 13 sons and daughters made up a kind of Greek chorus, sighing and clucking as the damaging testimony added up.

In his various phone calls and meetings with SAC’s lawyers, Balkany had repeated one phrase as if it would insulate him from suspicion: “I’m not a hold-up man.” He would then invariably assert the value of the work his school was doing in the community, or his good character as a Jew. “I’m not here to threaten some—God forbid, I’m on the other side of the fence,” Balkany told Nussbaum in one taped conversation. “You know, my heart goes out, that a man like Cohen, who obviously has made it, he’s probably even a kohane because his name is Cohen.”

Cohen, the Long Island-raised son of a Seventh Avenue garmento, never met Balkany, and he never came anywhere near the courtroom during Balkany’s trial in November. The closest he got, at least publicly, was a modern art auction at Christie’s, 60 blocks uptown. But the rabbi was the least of Cohen’s problems that month: The government’s insider-trading investigation was reaching fever pitch. Two weeks after the trial wrapped up, government agents served SAC and two other hedge funds with subpoenas and began making arrests.

And yet, from the start, Cohen’s lawyers took the rabbi seriously. Within days of Balkany’s first call to Connecticut, SAC’s outside counsel, a former prosecutor named Martin Klotz, reported the rabbi to federal prosecutors in New York’s Southern District—the same office pursuing the insider-trading investigation against Galleon. The SAC attorneys agreed to take the step of going undercover, taping hours of conversations that were crucial to the government’s case against Balkany. The rabbi, it seems, provided an excellent opportunity for Cohen’s team to do the government “a solid,” as one lawyer who has represented clients in the insider-trading investigation into Galleon put it to me. Stephen Miller, a former federal prosecutor in Manhattan and Philadelphia, explained SAC’s decision to participate as a savvy legal move. “They could say they have a culture of compliance,” he said, “and Exhibit A is this case.”

Now Balkany, who assumed that by presenting himself as a concerned “co-religionist” he could establish a real connection to Cohen, is facing up to 20 years in prison. And it’s all because the rabbi made a simple mistake: believing that, just because he imagined they shared a special bond as Jews, Cohen would feel the same way.

***

On November 1, 2010, the first day of the trial, Brafman, Balkany’s lawyer, urged the jury—three men and nine women, all but two of them black or Latino—not to judge his client as a Jew. “I represent the man with the white beard and black yarmulke,” Brafman said, by way of introduction. “Look at yourselves,” he went on. “Nobody on the jury looks like Rabbi Balkany. That’s not a jury of one’s peers.” It was an effective rhetorical gesture, but it sounded almost absurd in the context of a case that turned on Balkany’s effort to trade on his and Cohen’s shared Jewish heritage. “Frankly, I, I really, I’m doing this as a Jew to a Jew,” Balkany had insisted in a taped conversation with Klotz, SAC’s outside counsel. “I’m just stepping in, really, to be of help to him.”

The plan to extort Steve Cohen appears to have originated at the federal prison camp in Otisville, N.Y., an hour or so north of Manhattan, which the Bureau of Prisons has tailored to suit the special dietary and other needs of Hasidic inmates. “It’s like a bungalow colony up there in the Catskills,” joked Gary Friedman, the executive director of Jewish Prisoner Services International, an organization that provides services to Jewish inmates. Balkany was a regular visitor to the camp and, in his recorded conversations with SAC’s lawyers, said it was an inmate named David Schick who provided the connection to Hayim Regensberg, the man Balkany claimed was being pressured to give information on SAC. Schick, the scion of a famous bakery dynasty in Brooklyn, is an Orthodox Jew who defrauded his investors of as much as $200 million in the late 1990s.

Regensberg is serving a 100-month sentence for running a Ponzi scheme, and his lawyer, Robert Baum, told me he believes his client has information that may be of interest to the government. Indeed, some of the details that Balkany dangled in his conversations with SAC have proven to connect to real investigations—particularly concerning a healthcare fund called FrontPoint, which is embroiled in its own insider-trading scandal. But prison officials testified during Balkany’s trial that the rabbi never visited Regensberg during the months he spent negotiating with SAC, and federal investigators testified that no one from the government ever spoke to him about the insider-trading investigations, let alone approached him with an offer to cut a deal in exchange for information. “They haven’t tried to follow up,” Baum told me, in late November.

In Jewish terms, Cohen made a strange target. He and his wife, Alexandra—who grew up in a Puerto Rican Catholic family in Washington Heights—do not, according to tax records filed by their family foundation, give to Jewish communal organizations or to synagogues, but choose instead to shower millions on hospitals, urban-youth programs, and the schools where their children are enrolled—including Brown University, from which Cohen’s son, Robert, graduated in 2009. Cohen also sits on the board of the Robin Hood Foundation, a group devoted to fighting poverty in New York. Of the millions his foundation has given away since it was set up in 2001, the only significant donation to a Jewish cause was $25,000 to a religious-outreach group called Gateways, which is based in the ultra-Orthodox enclave of Monsey, to buy a table at a gala fundraising dinner in 2004. (The group’s director, Mordechai Suchard, told me he couldn’t remember who was being honored.)

In the wake of Balkany’s arrest, and amid a wave of publicity surrounding Cohen’s ex-wife Patricia, Steve and Alex Cohen earlier this year announced a $50 million gift to an organization that is at least nominally Jewish: the North Shore-Long Island Jewish Health System, which will use the money to expand its children’s hospital in New Hyde Park, south of Great Neck, where Cohen grew up. “Stevie Cohen is one of the most charitable people I know, and he’s done extremely well,” said his former boss Howard Silverman, who gave Cohen his start on Wall Street 30 years ago, at the boutique investment firm Gruntal & Co. “He wasn’t into his religion—he was just Jewish, like anyone else.”

Continue reading: a Jewish bond, Republican heavyweights, and “This trial doesn’t need any more drama.” Or view as a single page.

The suit claims that the board’s recent decision to shut down the district’s newest elementary school in the face of falling enrollment—allegedly with the ulterior motive of cherry-picking the best facility to sell or lease to a yeshiva—amounts to the backdoor establishment of religion, in violation of the First Amendment. It’s the latest flare-up in long-running tensions between Orthodox residents, on one hand, and secular Jews and non-Jewish residents, on the other, who are steadily being crowded out of the community. (Previous iterations have included vicious budget fights and contract disputes.) Lawyers for the school board dismiss the accusations and insist the public will “not only be aware, but they will participate in the process.” Which, of course, means the entire public, not just those who use the public schools.

First Amendment Suit Filed in Woodmere School Closure [Newsday]

Fraud Victims Want Maximum for Madoff [NYT]
Victims’ Letters to Judge Denny Chin [PDF]