SAC's Steinberg Found Guilty of Insider Trading
and Joseph Ax
NEW YORK -- Michael Steinberg, a top portfolio manager at Steven A. Cohen's SAC Capital Advisors hedge fund, has been found guilty on charges that he traded on insider information.
On Wednesday, a federal jury in Manhattan found Steinberg, 41, guilty on all five counts of conspiracy and securities fraud that he faced. Prosecutors said he traded on confidential information that was passed to him by an SAC analyst, who later admitted to swapping illegal tips with friends at other firms.
The verdict, delivered in the fifth week of his trial, was the latest victory for federal prosecutors in New York in their four-year crackdown on Wall Street insider trading that has resulted in convictions of 77 people and no trial losses.
"A lot of people were watching this one," said Stephen Crimmins, a lawyer at the law firm K&L Gates. "To lose a case with this high a profile would have been an embarrassment."
Steinberg closed his eyes and put his head back when the first guilty finding was read. Friends and family sitting behind him gasped and held each other, with some covering their mouths and others crying.
"Like many other traders before him who, blinded by profits, lost their sense of right and wrong, Steinberg now stands convicted of federal crimes and faces the prospect of losing his liberty," Manhattan U.S. Attorney Preet Bharara said.
The verdict, reached after a day and a half of deliberations, was delayed slightly when Steinberg fainted as it was about to be read. Jurors left the courtroom while he received medical attention and then returned.
A spokesman for Steinberg said he and his lawyers would not have any comment.
Steinberg faces a maximum of 85 years in prison. %VIRTUAL-article-sponsoredlinks%He will be sentenced on April 25 before U.S. District Judge Richard Sullivan, who has entered six of the 10 longest sentences in insider trading cases Bharara's office has brought since 2009.
The verdict came a month after SAC Capital agreed to pay $1.2 billion and plead guilty to fraud charges stemming from a long-running probe of insider trading at Cohen's once $14 billion hedge fund. SAC agreed previously to pay $616 million to resolve related U.S. Securities and Exchange Commission charges.
Cohen hasn't been criminally charged. The SEC is seeking to bar Cohen from the financial services industry on the basis of failing to supervise Steinberg and Martoma.
A spokesman for Stamford, Conn.-based SAC Capital declined to comment Wednesday, but in the past has said Cohen "acted appropriately at all times."
Dynamic Changed in Upcoming Case
Steinberg, who worked in SAC's Sigma Capital Management division, was one of eight employees at SAC to face criminal charges for insider trading and the first of two to fight them at trial.
A former SAC portfolio manager, Mathew Martoma, is scheduled to face trial Jan. 6.
Crimmins, the lawyer at K&L Gates, said Martoma may now wish to review his own decision to go to trial.
"The government's win in Steinberg does change the dynamic for Martoma," he said. "If Martoma is offered a deal he can live with, he has to think long and hard about it."
Six others have pleaded guilty to charges relating to insider trading, including Jon Horvath, an SAC analyst who prosecutors said supplied Steinberg with nonpublic information about companies, including Dell Inc. (DELL) and Nvidia Corp (NVDA).
Horvath, who cooperated with the government in hopes of avoiding jail time, became a star witness in the case against Steinberg, testifying over the course of nine days how his boss pushed him to get "edgy, proprietary" information.
Horvath, 44, was part of what prosecutors called a "corrupt circle" of research analysts who cultivated insider information and shared it with each other in order to make trading recommendations to their bosses.
Steinberg's lawyer, Barry Berke, sought throughout the trial to call Horvath's credibility into question, saying on Monday that he chose to "point the finger" at Steinberg only on the eve of his own trial and in a bid to avoid prison.
"The prosecution accepted what he told them hook, line and sinker," Berke said in closing arguments on Monday.
Two Holdout Jurors
The nine women and three men hearing the case included two accountants, a retired postal worker and a receptionist. The forewoman was a licensed massage therapist.
A member of the jury, Gyndolyn Richardson, said that up until Wednesday, it was 10 jurors for conviction and two against.
Jurors requested numerous exhibits and transcripts as they weighed whether Steinberg knew that the information Horvath was delivering him was confidential, Richardson said. The final holdout was the forewoman, she said, who finally came around after lunch.
"It's a very serious case and you can't be slipshod about it," said Richardson, a retired employee of the New York State Senate.
Prosecutors said the tips at issue in the case flowed through many hands before Steinberg placed any trades.
Sandeep Goyal, a former analyst at Neuberger Berman, testified to receiving information about Dell Inc's finances from Rob Ray, a friend working in Dell's investor relations department.
Goyal testified he then shared the information with Jesse Tortora, who at the time was an analyst at the hedge fund Diamondback Capital Management.
Tortora, who also testified in Steinberg's trial, said he shared the Dell tips with other analysts including Horvath. Horvath said he passed details to Steinberg "for purposes of trading on the information."
Among the trades prosecutors focused on were ones Steinberg made ahead of Dell's earnings report on Aug. 28, 2008. Based on a tip that Dell's gross margins would disappoint Wall Street, prosecutors say, Steinberg began shorting the computer company's stock, netting $1 million on the trades.
Tips on Nvidia likewise passed through several individuals before reaching Steinberg, prosecutors said.
Hyung Lim, a former marketing executive at Altera Corp. (ALTR) and Broadcom Corp. (BRCM), testified to giving tips about his employers to an occasional poker friend, Danny Kuo, who went on to work as an analyst at Whittier Trust Co.
After Kuo asked him if he knew anyone at Nvidia, Lim said he began getting tips from Chris Choi, a friend from his church who worked in Nvidia's accounting unit.
Horvath testified to receiving the information from Kuo, which he then shared with Steinberg. Based on advanced information that Nvidia's gross margins would disappoint Wall Street, Steinberg placed bets ahead of a May 7, 2009, earnings announcement that netted the hedge fund more than $400,000, prosecutors said.
Beyond Steinberg's own trades, the case spotlighted Cohen's trading activities. Days before Dell's August 2008 earnings, Horvath testified that he and Steinberg discovered Cohen was betting the company's stock price would go up based on another analyst's recommendation.
After Dell's results were announced, Cohen congratulated Steinberg's team. "Nice job on dell," Cohen wrote in an email. Pretrial filings show that Cohen avoided $3.5 million in losses on Dell after an email from Horvath about Dell was forwarded to him.
The case is U.S. v. Steinberg, U.S. District Court, Southern District of New York, No. 12-cr-00121.