University News

Employee of Corp. trustee’s hedge fund convicted

Michael Steinberg is the highest-ranking SAC employee convicted thus far

University News Editor
Saturday, December 21, 2013

Updated Jan. 22 at 2:14 a.m.


Federal prosecutors secured a conviction against former SAC Capital Advisors L.P. portfolio manager Michael Steinberg on insider trading charges last month, national news outlets reported — the latest development in the government’s investigation of Corporation trustee Steven Cohen’s P’08 P’16 hedge fund.

The Dec. 18 verdict in Manhattan Federal Court against Steinberg, the highest-ranking SAC employee to be found guilty and the first whose case went to trial, marks a significant victory for federal authorities in their decade-long investigation of SAC.

Steinberg, who was arrested in March, was accused of trading stocks of technology companies Dell, Inc., and Nvidia Corp. on proprietary information about the companies’ earnings.

At the time of Steinberg’s arrest, Chancellor Thomas Tisch ’76 said in a statement to The Herald, “Steve Cohen is a valued and involved trustee of Brown, and the University has been strengthened by his engagement,” adding that “there has been no pressure on Steve — or the Corporation — for him to leave his seat.”

Steinberg fainted as jurors entered the courtroom to announce their verdict, causing a temporary delay, the New York Times’ DealBook reported.

After the verdict, U.S. District Court Judge Richard Sullivan released Steinberg on bail until sentencing, which is set for April 25.

The government’s case relied heavily on former SAC employee Jon Horvath, who worked under Steinberg and testified against him with the hope of avoiding jail time, Reuters reported.

Horvath said at the trial that Steinberg pushed him to deliver “edgy” and “proprietary” information about Dell’s and Nvidia’s stocks and to “cultivate sources of non-public information,” DealBook reported.

Horvath also testified that Steinberg traveled to a conference in Arizona to prepare him to answer possible questions from federal authorities in the wake of raids on other hedge funds in fall 2010, DealBook reported.

Six of the eight SAC employees indicted in the government’s investigation have pleaded guilty, with only Steinberg and Mathew Martoma electing to fight the charges.

Prosecutors had hoped that Steinberg’s trial defeat would convince Martoma, a former portfolio manager, to consider cooperating with the government, several news outlets reported. But Martoma’s lawyer, Richard Strassberg, said there was no connection between the facts of each case, and Martoma’s trial began Jan. 6.

Martoma is charged with obtaining undisclosed information about clinical trials that proved a new drug to treat Alzheimer’s disease was ineffective. Martoma then had a 20-minute phone call with Cohen the day before SAC sold nearly all its shares in Elan Corporation P.L.C. and Wyeth Pharmaceuticals, the two companies developing the drugs, DealBook reported.

The trades netted SAC $276 million through losses avoided and profits made, leading U.S. Attorney for the Southern District of New York Preet Bharara to declare it “the most lucrative insider-trading scheme ever charged.”

Sidney Gilman, a doctor who served as the chairman of the safety committee for Elan during the clinical trial, testified last week that he supplied Martoma with confidential information about problems with the drug trials in July 2008. Gilman said he regularly provided Martoma with details about the trials he should not have revealed.

But the defendant’s lawyers have questioned the reliability of the 81-year-old witness’s memory. Gilman failed to remember during his testimony whether he began to supply Martoma with information in late 2006 or early 2007. Gilman was also undergoing cancer treatment when he forged his relationship with Martoma and was taking a drug whose side effects include confusion, according to DealBook.

Martoma’s indictment is also the first in which prosecutors have cited trades with which Cohen was directly involved.

Though prosecutors have not brought criminal charges against Cohen himself, they indicted his hedge fund for multiple counts of fraud in July, citing “systematic” insider trading and “institutional practices” that produced a culture encouraging improper trading.

In addition to the criminal charges against SAC, Cohen faces a pending civil suit filed in July by the Securities and Exchange Commission, which holds him responsible for “failing to supervise” employees accused of insider trading.

SAC reached a record insider-trading settlement with federal prosecutors in early November, under which the hedge fund agreed to pay about $1.2 billion in penalties, plead guilty to five charges of insider trading and cease managing outside money.

SAC is still permitted and expected to manage approximately $9 billion of Cohen’s personal money as it downsizes to a family office.


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One Comment

  1. Javier Gonzalez says:

    Is hedge fund manager Michael Steinberg at all related to the famous hedge fund manager Steinberg from the 1970s to the 1990s?

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