December 9, 2024

DealBook: Latest Domino in SAC Trading Inquiry Is a Top Manager

11:59 a.m. | Updated

A SAC Capital Advisors portfolio manager was arrested by federal agents on Friday, becoming the most senior employee at the giant hedge fund ensnared in the government’s vast insider trading investigation.

Michael Steinberg, 40, was arrested at his Park Avenue apartment early Friday morning and taken out of his building in handcuffs. He has worked for SAC and its owner, the billionaire investor Steven A. Cohen, since 1997 and became one of the firm’s senior portfolio managers, focusing on technology stocks.

Mr. Steinberg entered a plea of not guilty in Federal District Court in Manhattan on Friday and was freed on $3 million bail.

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“Michael Steinberg did absolutely nothing wrong,” said Barry H. Berke, a lawyer for Mr. Steinberg. “Caught in the cross-fire of aggressive investigations of others, there is no basis for even the slightest blemish on his spotless reputation. Mr. Steinberg is thankful for all the people who have continued to stand by him and believe in his innocence.”

Mr. Steinberg had returned on Thursday from Florida, where he had been vacationing with his family on spring break. He was the only one in the apartment on Friday morning, as his wife and children stayed in Florida.

Though recently placed on leave, Mr. Steinberg is one of SAC’s longest-tenured employees. He joined SAC shortly after graduating from the University of Wisconsin when the firm was just Mr. Cohen and several dozen traders. For years, he sat near Mr. Cohen on the trading floor, and the two grew close.

When Mr. Steinberg was married in 1999 at the Plaza Hotel, Mr. Cohen attended the black-tie affair. The two share the same hometown, Great Neck, N.Y., on Long Island, where they both attended Great Neck North High School.

A spokesman for SAC said on Friday: “Mike has conducted himself professionally and ethically during his long tenure at the firm.  We believe him to be a man of integrity.”

Hedge Fund Inquiry

Mr. Steinberg’s arrest had widely been expected, and is the latest in a swirl of activity surrounding the government’s investigation of SAC. Earlier this month, Mr. Cohen signed off on two settlements in which the firm agreed to pay federal securities regulators $616 million to resolve two insider trading cases against SAC. On Thursday morning, a federal judge refused to approve the larger of the two settlements, a $602 million pact, raising concerns over a provision that allows SAC to avoid admitting that it did anything wrong.

The smaller of the settlements, for about $14 million, related to trading by Mr. Steinberg and a fellow portfolio manager, Gabe Plotkin, according to people familiar with the case. Mr. Plotkin has not been charged with any wrongdoing.

Mr. Steinberg’s name first surfaced in the broader inquiry last September when a former SAC analyst who worked under him pleaded guilty to being part of an insider trading ring that illegally traded the technology stocks of Dell and Nvidia. As part of his guilty plea, the analyst, Jon Horvath, implicated his former boss, Mr. Steinberg, saying that he gave the confidential information to Mr. Steinberg and that they traded based on the secret financial data about those two companies.

In recent months, Mr. Horvath has met with authorities and provided them with information about his former boss.

“As alleged, Michael Steinberg was another Wall Street insider who fed off a corrupt grapevine of proprietary and confidential information cultivated by other professionals who made their own rules to make money,”  Preet Bharara, the United States attorney in Manhattan, said in a statement on Friday.

The Securities and Exchange Commission filed a parallel civil lawsuit against Mr. Steinberg on Thursday.

The government had previously identified Mr. Steinberg, a technology stock specialist in SAC’s Sigma Capital unit, as a co-conspirator in a case involving Mr. Horvath and two former hedge fund managers at other firms, Todd Newman and Anthony Chiasson. A jury convicted Mr. Newman and Mr. Chiasson in December on charges that they traded shares of Dell while in possession of secret information about the technology company.

E-mail from Mr. Steinberg that surfaced during testimony at the trial of Mr. Newman and Mr. Chiasson related to trading in Dell are likely to be part of the charges unveiled on Friday.

In an e-mail from August 2008, sent a few days before Dell’s quarterly earnings announcement, Mr. Horvath disclosed details about Dell’s financial data to Mr. Steinberg and Mr. Plotkin.

”I have a secondhand read from someone at the company,” Mr. Horvath wrote. ”Please keep to yourself as obviously not well known.”

Mr. Steinberg replied: ”Yes normally we would never divulge data like this, so please be discreet. Thanks.”

In another e-mail, Mr. Steinberg told Mr. Horvath and Mr. Plotkin about a conversation that he had with Mr. Cohen about conflicting views of Dell inside SAC. Mr. Plotkin owned a large Dell position, while Mr. Steinberg was short, meaning that he thought shares of Dell would drop in value.

”Guys, I was talking to Steve about Dell earlier today and he asked me to get the two of you to compare notes before the print” — meaning before the company’s earnings release — ”as we are on opposite sides of this one,” Mr. Steinberg wrote.

Mr. Berke, the lawyer for Mr. Steinberg, said in a statement Friday, “At all times, his trading decisions were based on detailed analysis as well as information that he understood had been properly obtained through the types of channels that institutional investors rely upon on a daily basis.”

Mr. Steinberg’s case will keep the spotlight on Mr. Cohen, 56, who has been a central focus of the government’s investigation. Mr. Cohen has not been charged with any wrongdoing, and has told his employees and investors that he believes that he acted appropriately at all times.

The pressure on Mr. Cohen escalated last November, when prosecutors charged Mathew Martoma, a former SAC portfolio manager, with trading in the drug stocks Elan and Wyeth based on secret information from a doctor related to drug trials. Mr. Cohen was involved in the trades at the center of the Martoma case, but the government has not claimed that Mr. Cohen possessed any secret information. Those trades were the subject of the S.E.C. civil action that SAC settled for $602 million.

Amid his legal woes, Mr. Cohen, who is said to be worth nearly $10 billion, has indulged in a little retail therapy in recent days, purchasing a Picasso painting for $155 million and buying a oceanfront estate in East Hampton for $60 million.

Michael Steinberg entered a plea of not guilty in Federal District Court in Manhattan on Friday and was freed on $3 million bail.John Marshall Mantel for The New York TimesMichael Steinberg entered a plea of not guilty in Federal District Court in Manhattan on Friday and was freed on $3 million bail.


This post has been revised to reflect the following correction:

Correction: March 29, 2013

Because of incorrect information supplied by prosecutors, an earlier version of this article gave the wrong age for Michael Steinberg, the SAC Capital Advisors portfolio manager who was arrested on Friday. He is 40, not 41.

Article source: http://dealbook.nytimes.com/2013/03/29/sac-capital-manager-arrested-on-insider-trading-charges/?partner=rss&emc=rss