By Nate Raymond and Matthew Goldstein
March 29 U.S. prosecutors on Friday charged
Michael Steinberg, a veteran portfolio manager at Steven A.
Cohen's hedge fund, with insider trading in two technology
stocks, the most senior SAC Capital Advisors' employee to be
indicted in the government's long-running probe.
FBI agents arrested Steinberg at his Park Avenue home in New
York City at around 6 a.m. EDT (1000 GMT). Steinberg, wearing a
blue sweater, pleaded "not guilty" to charges of securities
fraud and conspiracy to commit securities when he appeared at a
late morning arraignment.
The five-count indictment charges Steinberg, 40, with using
inside information to trade shares of computer maker Dell Inc
and chipmaker Nvidia Corp in 2008 and 2009
that generated about $1.4 million in illegal profits for Cohen's
$15 billion hedge fund.
In a related civil complaint against Steinberg, the U.S.
Securities and Exchange Commission said the information allowed
Steinberg to generate $6.4 million in profits and avoided losses
for the hedge fund.
Barry Berke, Steinberg's lawyer, said in a statement that
his client had done "absolutely nothing wrong" and his "trading
decisions were based on detailed analysis."
The charges come after a tumultuous six months for Cohen,
one of the most successful hedge fund traders. It began with
last November's arrest of former SAC portfolio manager Mathew
Martoma in what prosecutors had described as the largest U.S.
Martoma pleaded not guilty to charges of insider trading in
Elan Corp and Wyeth that allegedly resulted in profits
and avoided losses totaling $276 million.
SAC Capital agreed two weeks ago to pay a $616 million
penalty to the SEC to settle allegations of improper trading by
the firm arising out of the Martoma investigation and alleged
improper trading in Dell and Nvidia. SAC neither admitted nor
denied wrongdoing as part of that settlement.
But a federal judge on Thursday said he was reserving his
decision on approving the deal.
Mounting concern over the insider trading probe prompted
outside investors in SAC Capital to submit redemption notices
last month to withdraw up to $1.68 billion from Cohen's firm.
Several outside investors, including Blackstone Group,
declined to comment on Steinberg's arrest.
Cohen, a multi-billionaire, has not been charged with any
wrongdoing. A well-known art collector, he recently purchased
Pablo Picasso's "Le Reve" from casino owner Stephen Wynn for
$155 million and, according to The New York Times, bought a $60
million oceanfront home in East Hampton, N.Y.
$3 MILLION BOND
Steinberg is one of nine current or former employees of SAC
Capital who have been charged or implicated with insider trading
while working at Cohen's two-decade-old hedge fund.
His arrest had been widely expected after Jon Horvath, a
former SAC analyst who reported to Steinberg, pleaded guilty
last year to using illegally obtained information to trade in
Dell. Horvath has been cooperating with the government and had
Steinberg was suspended last autumn from his post at SAC
Capital's Sigma Capital division and remains on paid leave.
SAC Capital spokesman Jonathan Gasthalter said: "Mike has
conducted himself professionally and ethically during his long
tenure at the firm. We believe him to be a man of integrity."
Prosecutors have introduced emails that they said indicated
Steinberg had access to inside information about potential
weakness in Dell's earnings, in advance of the personal computer
maker's August 2008 results announcement.
Federal authorities contend the improper trading by
Steinberg largely involved short positions and derivative
trades. The trades involving shares of Dell occurred in August
2008, while the trading in Nvidia took place in May 2009.
The SEC complaint said some of the trading in Dell was done
by a SAC portfolio called SAC Select. People familiar with SAC
Select said it used computer-driven trading strategies to mimic
the trades of some of SAC Capital's top portfolio managers.
The complaint against Steinberg made no reference to Cohen,
unlike the criminal and civil cases filed by against Martoma,
which was the first time authorities had alluded to him as the
"owner" of the hedge fund.
Steinberg had been moving among several hotels in New York
City in recent weeks, according to Reuters sources, as he wanted
to avoid being arrested at his Upper East Side home where he
lives with his wife and two children.
Following the arraignment before U.S. District Judge Richard
Sullivan in lower Manhattan on Friday morning, Steinberg was
released after agreeing to post $3 million in bond, which was
secured by $1 million in property.
During the proceeding, a federal prosecutor said no search
warrant was served on the hedge fund in connection with the
charges against Steinberg.
In announcing the $616 million settlement with SAC Capital,
lawyers with the SEC made clear the deal did not preclude
further charges against individuals or from other trading at SAC
Capital that is still be investigated. As part of that
settlement, SAC Capital agreed to pay $14 million to settle
charges of improper trading in Dell.
On Thursday, a federal district judge reviewing the part of
the settlement involving trading in shares of Elan and Wyeth,
now a part of Pfizer, said he was reserving decision for
The cases in U.S. District Court, Southern District of New
York are: United States v. Steinberg, No. 12-cr-121, and
Securities and Exchange Commission v. Steinberg, No. 13-2082.