October 20, 2020

DealBook: Former Goldman Trader Pleads Guilty to Wire Fraud

The headquarters of Goldman Sachs in New York.Mark Lennihan/Associated PressThe headquarters of Goldman Sachs in Manhattan.

7:08 p.m. | Updated A former Goldman Sachs trader suspected of fabricating huge positions pleaded guilty to criminal actions on Wednesday, escalating a case that until now had led only to civil charges.

Matthew M. Taylor, whose trading caused unexpected losses for Goldman, pleaded guilty to one count of wire fraud at a court hearing in Lower Manhattan. Mr. Taylor, who more recently worked for Morgan Stanley, admitted to entering fabricated trades that concealed an $8.3 billion position to protect his bonus.

“I am truly sorry,” Mr. Taylor, 34, a Florida resident, told a federal judge on Wednesday. He had surrendered to the F.B.I. earlier Wednesday morning and was released on $750,000 bond.

In a statement, his lawyer noted that Mr. Taylor “has accepted responsibility for his conduct today.” The lawyer, Thomas C. Rotko, called “the unfortunate events” at Goldman “an aberration,” adding that “he looks forward to the opportunity to put this behind him and resume what has otherwise been a productive and exemplary life.”

While the charge could carry as much as a 20-year prison term, Mr. Taylor signed a plea agreement that suggests a lighter punishment, in the range of 33 to 41 months. Still, Judge William H. Pauley III, who questioned on Wednesday whether prosecutors should have adopted a more aggressive stance, has discretion to set the penalty. Mr. Taylor’s sentencing is set for July 26.

The guilty plea came as a surprise development in a case that seemed limited to regulatory actions. Last year, the Commodity Futures Trading Commission accused Mr. Taylor of defrauding Goldman and sanctioned the bank for failing to supervise him. In December, Goldman paid $1.5 million to settle the case.

At the time, Goldman noted that the trades did not affect customer money. “Since these events, we have enhanced our controls,” the bank said, adding that “Taylor admitted his conduct following market close and was subsequently terminated.”

The problem arose in late 2007, as Mr. Taylor was riding out a rough patch in the markets. Mr. Taylor, who traded equity derivatives products in New York, had erased his trading gains for the year. And his bosses, threatening to slash his $1.6 million bonus, ordered him to whittle down the risk on his trading book.

But Mr. Taylor, prosecutors said, ratcheted up the position. Mr. Taylor soon blew through risk limits the bank set not only for him but also for his entire 10-person trading desk.

To conceal the size of the position, he entered “multiple false entries” into a Goldman trading system, booking trades that he never actually made. The bogus trades gave the false impression that his portfolio was well balanced.

Mr. Taylor, authorities said, manually entered his trades so they did not register on the radar screen of the CME Group, the giant commodities exchange. The trading prompted about $120 million in losses for Goldman.

“Taylor has admitted he actively circumvented internal controls at Goldman Sachs for his own benefit, exposing the firm to substantial risk in the process,” said George Venizelos, the F.B.I. assistant director in charge of the New York field office.

Despite the stain on his record, Mr. Taylor was hired by Morgan Stanley in 2008. He has since left the firm.

Article source: http://dealbook.nytimes.com/2013/04/03/former-goldman-trader-surrenders-to-f-b-i/?partner=rss&emc=rss

DealBook: Insider Inquiry at SAC Reaches Into Higher Ranks

8:55 p.m. | Updated

Friends of Michael S. Steinberg had always marveled at his good fortune.

In his mid-20s, he landed a job a SAC Capital Advisors, then a small hedge fund owned by Steven A. Cohen, who was fast developing a reputation on Wall Street as a stock trading wizard. As SAC posted stupendous returns year-after-year and became one of the world’s largest hedge funds, Mr. Steinberg earned tens of millions of dollars trading as a close associate of Mr. Cohen, and rose within the firm.

When Mr. Steinberg married at the Plaza Hotel a few years after joining SAC, his boss attended the black-tie affair. Mr. Steinberg and his family moved into an $8 million Park Avenue co-op and summered in the Hamptons. He also gave back, helping found Natan, a philanthropy that promotes Israel and Jewish culture.

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Then, his charmed life came undone.

On Friday, Mr. Steinberg became the most senior SAC employee to be ensnared in the government’s multiyear insider trading investigation. F.B.I. agents showed up at his apartment on the Upper East Side of Manhattan and arrested him in the pre-dawn hours. Just the day before, Mr. Steinberg had returned from a vacation in Florida, where he and his family visited relatives and took a trip to Disney World.

Later on Friday, Mr. Steinberg, 40, in a black V-neck sweater and charcoal-gray slacks, appeared in Federal District Court in Manhattan and pleaded not guilty. Judge Richard J. Sullivan freed him on $3 million bail.

“Michael Steinberg did absolutely nothing wrong,” Barry H. Berke, a lawyer for Mr. Steinberg, said in a statement. “Caught in the cross-fire of aggressive investigations of others, there is no basis for even the slightest blemish on his spotless reputation.”

The arrest was the latest in a whirlwind of activity related to the government’s investigation of SAC. For years, federal agents have been building a case against the fund. This month, SAC agreed to pay $616 million to settle two civil insider trading actions brought by the Securities and Exchange Commission. On Thursday, a federal judge refused to approve the larger settlement of $602 million, raising concerns over a provision that lets SAC avoid an admission of wrongdoing.

Hedge Fund Inquiry

Including Mr. Steinberg, nine current or former SAC employees have been linked to insider trading while at the company; four have pleaded guilty. Some of the former employees who have been implicated hardly knew Mr. Cohen, who operates a sprawling $15 billion fund with more than 1,000 employees across the globe.

But Mr. Cohen and Mr. Steinberg were close. Mr. Steinberg is one of SAC’s most veteran employees, though he was recently placed on leave soon after being tied to an earlier case. He joined SAC shortly after graduating from the University of Wisconsin. When he began at SAC, it was just Mr. Cohen and several dozen traders. For years, he sat near Mr. Cohen on the trading floor in the fund’s headquarters in Stamford, Conn., and he was part of a team of tech-stock traders that posted outsize returns during the dot-com boom and bust. Later, he helped start Sigma Capital, an SAC unit in Midtown Manhattan.

While years apart, the two share the same hometown — Great Neck, N.Y., on Long Island, where both attended Great Neck North High School. They also share a love of art; Mr. Steinberg introduced Mr. Cohen to his childhood friend Sandy Heller, who became Mr. Cohen’s longtime art adviser.

In the past, SAC has distanced itself from former employees charged with insider trading, but on Friday, it issued a statement in support of Mr. Steinberg: “Mike has conducted himself professionally and ethically during his long tenure at the firm. We believe him to be a man of integrity.”

Federal investigators have tried to press lower-level SAC employees for information in helping them build a case against Mr. Cohen. In one instance, F.B.I. agents showed a former trader a sheet of paper with headshots of his former colleagues, with Mr. Cohen at the center. The agents compared the SAC founder to an organized-crime boss who sat atop a corrupt organization.

The pressure on Mr. Cohen, 56, escalated in November, when prosecutors charged Mathew Martoma, a former SAC portfolio manager, with trading in the drug stocks Elan and Wyeth based on confidential drug trial data that a doctor had leaked to him. Mr. Cohen was involved in drug stock trades, but the government has not claimed that he possessed any secret information. Those trades were the subject of the S.E.C. civil action that SAC settled for $602 million. Mr. Martoma has pleaded not guilty and has refused to cooperate with investigators.

Mr. Cohen has not been accused of any wrongdoing and has told his investors that he believes he has acted appropriately at all times.

Amid his legal woes, Mr. Cohen, whose net worth is estimated at about $10 billion, has gone on a shopping binge in recent days, paying $155 million for the Picasso painting “Le Rêve” and $60 million for an oceanfront estate in East Hampton on Long Island.

Mr. Steinberg’s name surfaced last fall, when a former SAC analyst pleaded guilty to being part of an insider-trading ring that illegally traded the technology stocks Dell and Nvidia. As part of his guilty plea, the analyst, Jon Horvath, implicated Mr. Steinberg, saying that he gave the confidential information to Mr. Steinberg and that they traded based on that data. On Friday, federal prosecutors charged Mr. Steinberg with conspiracy and securities fraud, accusing him of participating in the illegal Dell and Nvidia trades. The Securities and Exchange Commission filed a parallel civil lawsuit against Mr. Steinberg.

Last year, a jury convicted two hedge fund managers at other firms related to the Dell and Nvidia trades. E-mails from Mr. Steinberg that emerged in that trial were included in the indictment on Friday.

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

Mr. Horvath wrote that he had “a 2nd hand read from someone at the company.” He added, “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.”

In another e-mail from the trial, Mr. Steinberg told Mr. Horvath and another portfolio manager, Gabe Plotkin, about a conversation 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 ahead of the company’s earnings release — “as we are on opposite sides of this one,” Mr. Steinberg wrote.

Since his name surfaced in the investigation, Mr. Steinberg has occasionally spent evenings in New York hotels to avoid being handcuffed at home in front of his two children. Federal agents refused to let Mr. Steinberg surrender of his own volition at F.B.I. headquarters downtown, expressing the view that white-collar defendants should not be given special treatment.

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

DealBook: SAC Settles Insider Trading Cases for $614 Million

One of the cases involves a former SAC employee Mathew Martoma, who still faces S.E.C. and criminal charges on trades involving two drug makers.Spencer Platt/Getty ImagesOne of the cases involves a former SAC employee Mathew Martoma, who still faces S.E.C. and criminal charges on trades involving two drug makers.

2:16 p.m. | Updated

Two affiliates of SAC Capital, the giant hedge fund, settled insider trading charges with the Securities and Exchange Commission for $614 million on Friday, in what the agency was the biggest ever settlement for such cases.

The settlements spare SAC’s founder, the billionaire Steven A. Cohen, who hasn’t been charged with wrongdoing. Mr. Cohen, one of the most successful hedge fund managers in the world, has long been considered a target of federal investigators.

But the settlements represent one of the biggest financial coups by the S.E.C. in insider trading cases yet. The amounts paid by SAC surpass the $400 million that Michael Milken paid to settle charges by the agency in 1990.

One affiliate of SAC, CR Intrinsic, agreed to pay over $600 million over charges tied to one of its employees, who is accused of trading on illicitly obtained confidential information about the drug makers Elan and Wyeth.

That employee, Mathew Martoma, still faces both civil charges from the S.E.C. and criminal charges from the Justice Department.

A lawyer for Mr. Martoma, Charles Stillman of Stillman Friedman, said in a statement: “SAC’s business decision to settle with the S.E.C. in no way changes the fact that Mathew Martoma is an innocent man. We will never give up our fight for his vindication.”

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The other affiliate, Sigma Capital Management, agreed to pay $14 million to settle charges that it engaged in insider trading in the stocks of Dell and Nvidia.

Hedge Fund Inquiry

SAC’s management company will pay the settlements, meaning that investors of the hedge fund aren’t on the hook.

The settlements, especially that of CR Intrinsic, represent more successes by the federal government in its campaign against insider trading.

“The historic monetary sanctions against CR Intrinsic and its affiliates are sharp warning that the S.E.C. will hold hedge fund advisory firms and their funds accountable when employees break the law to benefit the firm,” George S. Canellos, the acting director of the S.E.C.’s enforcement division, said in a statement.

A spokesman for SAC said in a statement, ““We are happy to put the Elan and Dell matters with the S.E.C. behind us. This settlement is a substantial step toward resolving all outstanding regulatory matters and allows the firm to move forward with confidence. We are committed to continuing to maintain a first-rate compliance effort woven into the fabric of the firm.”

Article source: http://dealbook.nytimes.com/2013/03/15/sac-settles-insider-trading-cases-for-614-million/?partner=rss&emc=rss

Former S.E.C. Official Represented Indicted Financier, Agency Says

Spencer Barasch, former head of enforcement for the Securities and Exchange Commission in Fort Worth, Tex., is being investigated by the United States Attorney’s Office and the Federal Bureau of Investigation, according to testimony on Friday by Robert Khuzami, the S.E.C. enforcement director, and David Kotz, the agency’s inspector general.

The criminal inquiry follows S.E.C. internal findings that Mr. Barasch made numerous requests after he left the S.E.C. to represent Mr. Stanford and was turned down each time.

Mr. Barasch persisted in his requests even though he directly dealt with the Stanford case while at the S.E.C. and was partly responsible for ignoring repeated red flags S.E.C. examiners raised about Mr. Stanford as early as 1997, Mr. Kotz found in a 2010 report. He eventually did provide some legal counsel to Mr. Stanford in 2006, the report found.

“We made a referral to criminal authorities,” Mr. Khuzami told a House Financial Services oversight subcommittee.

In addition, Mr. Kotz and Mr. Khuzami said they had referred the matter for investigation to the Texas and Washington bars.

Republican lawmakers called the hearing to investigate why it took the S.E.C. so long to investigate Mr. Stanford despite repeated attempts by S.E.C. examiners to bring the matter to the enforcement division’s attention.

The agency finally filed civil charges against Mr. Stanford in February 2009. He was arrested in June 2009 and criminally charged with fraud in connection with a $7 billion scheme linked to certificates of deposit issued by his Antigua-based banking company. He has denied any wrongdoing.

Article source: http://feeds.nytimes.com/click.phdo?i=8a80aa3cb3d182c01db019bc6e29b7e8