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Closing In On SAC, FBI Arrests Portfolio Manager

Federal agents arrested the portfolio manager of the largest hedge fund in the country. After a week of buying mansions and Picassos, is SAC Capital founder Steve Cohen next?

After a high-flying week of SAC Capital headlines, it is not ending with a Good Friday. Early this morning FBI agents led SAC portfolio manager Michael Steinberg out of his Park Avenue apartment building in handcuffs. Steinberg is suspected of using insider knowledge when dealing in stocks of computer giant Dell.

As portfolio manager for one of the largest hedge funds in the country, Steinberg is now the most senior member of SAC Capital to be charged with insider trading in the FBI probe. Last December, prosecutors indicted Mathew Martoma, a former SAC portfolio manager for suspicious drug-stock trades. Former Sac analyst Jon Horvath pleaded guilty last year to participating in the Dell insider trading ring.

Inside SAC, are they now counting the employees not charged with insider trading to make things easier?

[Things could be worse. Winton Capital shuts hedge fund due to lack of interest.]

Steinberg's arrest follow to firm's record payout of $616 million in civil penalties to settle two insider trading lawsuits brought by the Securities and Exchange Commission. Of that amount, $14 million was for allegations of insider trading of Dell stock.

"These settlements are a substantial step toward resolving all outstanding regulatory matters and allow the firm to move forward," Jonathan Gasthalter, a spokesman for SAC, told the media.

Steinberg's early morning arrest is a sign that the Feds are not done looking at traders at the high-speed trading firm.

"These settlements call for the imposition of historic penalties," said George S. Canellos, the SEC's acting enforcement director. DealBook reports Canellos added that "the resolutions did not prevent the future filing of additional charges against any person, specifically citing Mr. Cohen, who was not named as a defendant in the civil actions on Friday."

When the going gets tough, the tough go shopping.

This has been a week on contrasts for SAC Capital founder and owner Steve A. Cohen. Along with cutting the check for $616 million on the two insider trading settlements, Cohen is not shying away from a bout of conspicuous retail therapy.

After news surfaced last week that Cohen paid a reported $155 million for Picasso’s Le Rev - a recent record amount for a work of art - DealBook reports that Cohen plunked down $62 million for a beachfront mansion in East Hampton. The 56-year old's stunning new home is just down the road from a mansion he already owns on eastern Long Island.

With the SEC and FBI vultures circling SAC Capital and given the recent purchased by the fund's founder, some questions come to mind. As my colleague Ivy Schmerken puts it: "I wonder how the SEC will look upon this frenzy of activity? Does it seem as if he is celebrating the resolution of his legal problems with the SEC? Does it appear excessive? Too much celebration could give the appearance of not taking things seriously."

Or maybe he might be leaving something to his family is he's a ward of the state one day. Stay tuned.

Phil Albinus is the former editor of Advanced Trading and he currently edits the FierceFinanceIT newsletter. Follow him on Twitter at @philalbinus.

Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio

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