A Brooklyn rabbi thought he could swindle hedge-fund king Steven Cohen by playing on his Judaism. It was a bad bet.

Milton Balkany, Steven Cohen, and Balkany's former yeshiva, Mesivta Torah Vodaath.

Steven A. Cohen, the billionaire hedge-fund manager, doesn’t take cold calls. If you dial the headquarters of Cohen’s $12 billion fund, SAC Capital Advisors, in Stamford, Connecticut, a pleasant-voiced receptionist will kindly offer to take a message, which Cohen’s assistant will screen without disturbing her boss, who typically spends the hours of the trading day deeply engrossed in the numbers flashing across the eight screens mounted at his desk. He communicates with his fellow traders through desktop squawk boxes, and they watch him via an in-house video feed referred to as “the Steve Cam.”

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.…

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