Jon Horvath, a former technology analyst at a unit of Steven Cohen’s $14 billion hedge fund SAC Capital Advisors LP, pleaded guilty to passing nonpublic information to his portfolio manager, who traded on the tips.
Horvath, 42, pleaded guilty today before U.S. District Judge Richard Sullivan in Manhattan to one count of conspiracy to commit securities fraud and two counts of securities fraud. Horvath, who is cooperating with the U.S. probe and may testify against his former co-defendants, faces a maximum of 45 years in prison, the judge said. Horvath, a Swedish citizen, could face deportation, Sullivan said.
The plea comes days after it was revealed that Michael Steinberg, a hedge fund manager at SAC Capital’s Sigma Capital Management Ltd. and Horvath’s former supervisor, is an unindicted co-conspirator in the $62 million insider-trading scheme tied to technology stocks, according to two people familiar with the matter. Horvath didn’t name Steinberg or Sigma Capital today, saying that he worked as an analyst at a Manhattan hedge fund from 2006 to 2011 and passed illegal tips to the portfolio manager who supervised him.
“I was part of a group of analysts who agreed to obtain and share information about public companies,” Horvath said today during his plea. “Some of the information I received was material nonpublic information which I knew came from public company employees and I knew they were not permitted to disclose or share with outsiders.”
Horvath, of San Francisco, told the judge that he and his co-conspirators obtained material nonpublic information on Dell Inc. (DELL) in August 2008 and about Nvidia Corp. (NVDA) in May 2009 from insiders at the two technology companies.
“In each instance I provided the information to the portfolio manager I worked for and we executed trades in the stocks based on that information,” he said.
Horvath is the 69th person to plead guilty or be convicted after trial of insider trading since August 2009. A total of 72 people have been charged with insider trading as part of a law enforcement initiative by Manhattan U.S. Attorney Preet Bharara’s office and agents with the Federal Bureau of Investigation’s New York office.
Steinberg, 40, of SAC’s Sigma Capital Management unit, has worked at the hedge fund since 1997 and is the fifth person to be tied to insider trading while employed at SAC’s Sigma. His lawyer, Barry Berke, declined to comment about Horvath’s guilty plea. Steve Peikin, Horvath’s defense lawyer, declined to comment as he left court with his client. Sullivan set a tentative sentencing date of March 31.
“Until today, Mr. Horvath maintained he had not violated the law and we gave him the benefit of the presumption of innocence,” SAC said in a statement issued after the plea today. “We are disappointed and angered to learn Mr. Horvath admittedly violated the law and SAC’s policies forbidding insider trading. We expect our employees to have integrity, play by the rules and follow the letter and spirit of the law.”
Horvath faced trial Oct. 29 along with two other portfolio managers for his part in what Bharara called a “criminal club”: a conspiracy of hedge fund managers, co-workers and company insiders who reaped millions of dollars on illegal tips about Dell and Nvidia.
Horvath and his co-defendants, Level Global Investors LP co-founder Anthony Chiasson and ex-Diamondback Capital Management LLC portfolio manager Todd Newman, were accused of participating in a conspiracy with other portfolio managers, analysts and insiders at technology firms who swapped tips from 2007 to 2009.
The men were first charged in January, as part of an alleged insider-trading ring. Five people who were part of the group have pleaded guilty and are cooperating with the government.
Steinberg’s alleged role was revealed in a letter from prosecutors that Sullivan unsealed on Sept. 21.
“The government added four additional co-conspirators,” prosecutors wrote in a Sept. 6 letter filed with the court, with the names blacked out. One of them, the U.S. said, is “the portfolio manager to whom Jon Horvath reported at his hedge fund.” That person was Steinberg, said the people, who declined to be identified because the matter isn’t public.
Ellen Davis, a spokeswoman for Bharara, declined to comment on the court filing.
The government filed a revised indictment against Horvath, Chiasson and Newman on Aug. 28, adding an additional securities fraud count against all three men for alleged insider-trading involving Santa Clara, California-based Nvidia.
The government, in a memo to defense lawyers, said it identified 12 co-conspirators, including Horvath, Newman and Chiasson. In an Aug. 29 filing, prosecutors added four additional co-conspirators whose identities were redacted in publicly-filed court papers, including Steinberg.
Assistant U.S. Attorneys Antonia Apps and Richard Tarlowe had notified defense lawyers in an August memo that they had additional evidence that Newman, Chiasson and Horvath attempted to or did obtain material nonpublic information about 11 more stocks not listed in the indictment, including Advanced Micro Devices Inc. (AMD); Taiwan Semiconductor Manufacturing Co.; Texas Instruments Inc. (TXN); Intel Corp. (INTC) and Western Digital Corp. (WDC)
Greg Morvillo, a lawyer for Chiasson, and John Nathanson, an attorney for Newman, didn’t immediately return phone calls seeking comment about their clients and about Horvath’s plea.
Peikin this month lost a bid to delay Horvath’s trial until January based on new evidence offered by prosecutors and a superseding indictment filed in August that added an additional charge of securities fraud against the three men. The judge rejected that request and ordered the trial to proceed as scheduled.
In addition to Horvath, two other former SAC fund managers, Noah Freeman and Donald Longueuil, pleaded guilty last year to securities fraud for insider trading. Freeman has been cooperating with Bharara’s office and agents of the FBI in New York in their five-year insider probe dubbed “Perfect Hedge.”
At last year’s insider-trading trial of former Primary Global Research LLC consultant Winifred Jiau, Freeman testified he traded on illegal tips on at least 18 occasions while at SAC Capital and at Sonar Capital Management LLC.
Freeman also testified that he, Longueuil and Sam Barai, founder of New York-based Barai Capital Management LP, obtained material, nonpublic information from technology company insiders, including Jiau, then traded on the information. Longueuil was sentenced to 30 months in prison.
Last April, former SAC analyst Jonathan Hollander agreed to settle U.S. Securities and Exchange Commission allegations that he traded on inside information about a pending takeover of the Albertson’s LLC grocery chain.
The SEC alleged that Hollander tipped others about the acquisition and that he and others earned $95,807 in illegal profits. Hollander, who was trading in his personal account, agreed to pay more than $222,000, said his lawyer, Aitan Goelman.
SAC Capital and Cohen haven’t been charged with any wrongdoing.
The case is U.S. v. Newman, 12-00124, U.S. District Court, Southern District of New York (Manhattan).
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