SAC fund manager Steinberg guilty in insider trading case

Verdict may increase pressure on colleague to cooperate in investigation of founder Cohen

Dec 18, 2013 @ 4:58 pm

SAC Capital Advisors' Michael Steinberg became the fund's longest-serving manager to be convicted of insider trading in a government victory that may increase pressure on his former colleague, Mathew Martoma, to cooperate in the U.S. investigation of founder Steven A. Cohen.

Mr. Steinberg, 41, was convicted of conspiracy and securities fraud after a five-week trial in U.S. District Court in Manhattan. A jury found him guilty of using illegal tips on technology stocks provided by an analyst, Jon Horvath, to reap more than $1.4 million in illicit profits. Mr. Steinberg faces as many as 25 years in prison when he is sentenced April 25.

Last month, SAC Capital agreed to plead guilty and pay a record $1.8 billion for perpetrating an insider trading scheme stretching back to 1999 that garnered hundreds of millions of dollars in illicit profits. New York federal prosecutors have brought insider trading cases against 87 people and won convictions against 76 of them as part of a six-year nationwide probe of fund managers, company insiders and so-called expert network firms.

Manhattan U.S. Attorney Preet Bharara said after SAC's plea that his investigation of the hedge fund's employees continues as investigators seek evidence to link Mr. Cohen, 57, to insider trading. Mr. Martoma, 39, who has declined to cooperate with prosecutors in the past, goes on trial in Manhattan federal court Jan. 6 on charges he used illegal tips tied to pharmaceutical company stocks.

Mr. Steinberg's lawyer, Barry Berke, declined to comment on whether he would appeal the verdict.

With SAC's landmark plea and Mr. Steinberg's conviction, Mr. Martoma may see cooperating in the probe as a less risky option than trial, said Anthony Sabino, a law professor at St. John's University.

“He has to decide if he now has a greater chance of losing and going to prison and decide if it's too late for a plea bargain,” Mr. Sabino said. “This will also strengthen the government's resolve to press him for the most information he can provide them. They could tell him, 'Yes, you can get a deal, but only if you deliver the great white whale who is Steven A. Cohen.'”

Mr. Cohen hasn't been charged with a crime.

Mr. Martoma, a former fund manager at SAC's CR Intrinsic unit, is accused of using inside information on clinical trials of an Alzheimer's disease drug to earn a profit and avoid losses for a combined benefit of at least $276 million. Mr. Martoma has pleaded not guilty.

Jonathan Gasthalter of Sard Verbinnen & Co., a spokesman for SAC, declined to comment on the verdict.


Mr. Steinberg showed no reaction as the verdict was announced. He was allowed to remain seated having earlier suffered what the judge called a “dizzy spell” when the panel initially entered the courtroom.

The jury of nine women and three men deliberated for one day after they began weighing the evidence on Dec. 17. The panel found Mr. Steinberg guilty on all five counts: one count of conspiracy to commit securities fraud, two counts of securities fraud stemming from trades in Dell Inc. in August 2008 and two counts of securities fraud stemming from trades the portfolio manager made in Nvidia Corp. in May 2009.

SAC Capital agreed to close its investment advisory business as part of the $1.8 billion deal announced Nov. 4 to end a criminal probe and a money-laundering suit filed by Mr. Bharara's office. Mr. Bharara has called SAC Capital “a veritable magnet for market cheaters.”

The judge presiding over SAC's insider trading case hasn't decided whether she will accept the hedge fund's plea. Executives at SAC, which had $15 billion of assets at the beginning of the year, expect the firm to start 2014 with $9 billion, most of that Cohen's.


Mr. Steinberg, who started at SAC Capital in 1997, was considered by many at the fund to be the “right-hand man” of Mr. Cohen, one witness testified during the trial. He joined SAC Capital three years after graduating from college and was part of a group of traders who socialized with Mr. Cohen during joint vacations and sporting events.

During the trial, which began Nov. 18, the U.S. called 13 witnesses, including Mr. Horvath, the former analyst, who described how he passed nonpublic information about Dell and Nvidia to the money manager from 2007 to 2009. The U.S. said Mr. Steinberg used inside information to make more than $1 million by trading on Dell in August 2008 and more than $400,000 on a trade in Nvidia in 2009.

Assistant U.S. Attorneys Antonia Apps and Harry Chernoff said that Mr. Steinberg knowingly traded on illegal tips after Mr. Horvath provided the fund manager with numbers on revenue, gross margins and operating expenses ahead of company earnings announcements.

Mr. Horvath, who pleaded guilty to insider trading charges and is cooperating with the U.S., testified he was a member of a “criminal club” of hedge fund analysts who obtained illegal tips from technology company employees that they funneled to their portfolio manager bosses.

Mr. Horvath testified he began feeding Mr. Steinberg secret tips he obtained from his analyst friends, after the money manager asked him in about August 2007 to get him information that he could trade on. That request, he said, came after a trade recommended by Mr. Horvath that was based on legitimate research lost Mr. Steinberg's portfolio more than $1 million.

“I can day-trade these stocks and make money by myself,” Mr. Horvath testified, quoting Mr. Steinberg. “'I don't need your help to do that. But what I need you to do is get me edgy, proprietary, market-moving information that we can use to make money on these stocks.'''

Mr. Berke, Mr. Steinberg's lawyer, accused Mr. Horvath of being a liar. He told the jury that Mr. Horvath was ''walking, talking reasonable doubt'' and had falsely implicated his client to avoid going to prison for his crimes.

Mr. Berke argued that Mr. Horvath pleaded guilty last year, six weeks before his own insider trading trial was scheduled to begin and had ''traded his freedom for that of another.''

In closing arguments on Dec. 16, Mr. Berke told jurors that Mr. Horvath concealed the true source of his information from Mr. Steinberg and that some of the data was obtained from Dell and Nvidia investor relations.

(Bloomberg News)


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