Compliance

12:24 PM
Connect Directly
Facebook
Google+
LinkedIn
Twitter
RSS
E-Mail
50%
50%

Will The Insider Trading Case Against SAC Be Too Tough To Prove?

In the weeks leading up to his arrest, SAC portfolio manager Michael Steinberg apparently told friends he knew he would be indicted but that he expected to beat the charges.

If there ever was a roller coaster of a week, SAC Capital experienced it in the last seven days. On March 22, the hedge fund’s owner, Steve Cohen, signed off on two settlements with SAC agreeing to pay regulators $616 million to resolve two insider trading cases. Cohen then went on a seemingly celebratory luxury shopping spree, snapping up a Picasso for $155 million and a Hamptons mansion for $62million. By the end of the week, a federal judge had rejected the larger settlement. And the next day, the Feds arrested and charged senior portfolio manager Michael Steinberg. As the Feds close in on SAC’s top executives, however, will the insider trading case against Steinberg and others just be too difficult to prove?

[SAC Capital: When The Feds Came Knocking

The case against Steinberg is built largely on the testimony of one of his former colleagues, analyst Jon Horvath, who has admitted to insider trading and is now cooperating with the government. But to win a guilty verdict against Steinberg, prosecutors will need to convince the jury that Horvath, a man who already admitted to breaking the law, is telling the truth on the witness stand, CNBC.com points out in an article.

From CNBC.com:

"What they're going to need to prove is that Steinberg got inside information that he knew came from an insider and that he then traded on it," said Marc Greenwald, a former U.S. prosecutor in New York who is now a partner at Quinn Emanuel in New York, and not involved in the case. "It all depends on what Horvath said he said and whether everybody believes him."

The case against Steinberg is significantly different from other recent insider trading cases as it relies on a chain of people who have admitted to passing along inside information, rather than on incriminating emails or wiretaps.

Court papers filed in the case reportedly reveal how people working at Dell and Nvidia gave non-public information about the companies to various hedge fund analysts at different firms who then shared it with each other. They were caught in 2011, and either pleaded guilty or were convicted by a jury.

One of those caught was Jesse Tortora, an analyst at Diamondback Capital Management, who passed the non-public information to Horvath, who reported directly to Steinberg.

After pleading guilty last year, Horvath began cooperating with investigators. He told them he gave the inside information to Steinberg, who traded on it. Steinberg allegedly brought in $1.4 million in illegal profits for SAC. In a related civil complaint against, the SEC said the information allowed Steinberg to generate $6.4 million through profits or avoided losses.

If the case goes to trial, Horvath will have to testify against Steinberg, his former boss.

In the weeks leading up to his arrest, Steinberg apparently told friends he knew he would be indicted but that he expected to beat the charges, CNBC.com reports.

It remains to be seen whether Steinberg will have cause for celebration after all in a few months. After all, insider trading cases are already notoriously difficult to prove, even more so when they simply rely on testimony.

Still, in this case, regulators seem intent on proving that much of SAC Capital Advisors’ astonishing profits are the result of insider trading. And despite the (over?) confidence of Cohen and other SAC executives, prosecutors may still get the last laugh.

Melanie Rodier has worked as a print and broadcast journalist for over 10 years, covering business and finance, general news, and film trade news. Prior to joining Wall Street & Technology in April 2007, Melanie lived in Paris, where she worked for the International Herald ... View Full Bio

Comment  | 
Print  | 
More Insights
Comments
Newest First  |  Oldest First  |  Threaded View
Register for Wall Street & Technology Newsletters
White Papers
Current Issue
Wall Street & Technology - Elite 8
The in-depth profiles of this year's Elite 8 honorees focus on leadership, talent recruitment, big data, analytics, mobile, and more.
Video
Stressed Out by Compliance, Reputational Damage & Fines?
Stressed Out by Compliance, Reputational Damage & Fines?
Financial services executives are living in a "regulatory pressure cooker." Here's how executives are preparing for the new compliance requirements.