Of all the former employees at Steven A. Cohen’s SAC Capital Advisors LP who have been charged with insider trading, Michael S. Steinberg was closest to the hedge fund’s billionaire founder, starting as a young recruit and rising to become one of his most-trusted money managers.
He joined SAC in 1997, three years after graduating college, and was part of a group of traders who socialized with Cohen at joint vacations and sporting events. Steinberg introduced the hedge-fund owner to his art adviser, and Cohen attended Steinberg’s 1999 New York wedding, according to former colleagues, friends and people with knowledge of SAC.
Steinberg was arrested today by FBI agents at his Manhattan apartment, the seventh current or former SAC employee to be accused by the U.S. of insider trading while at the hedge fund. A 16-year veteran of Cohen’s firm, he is one of five former technology portfolio managers and analysts whose careers crossed paths at SAC during the late 1990s, when the hedge fund posted annual returns averaging almost 60 percent, and who have since been linked to the government investigation.
“Steinberg is another domino that has fallen in a path that leads to a central person at SAC,” said John C. Coffee Jr., a professor at Columbia Law School in New York. “He’s one of the few that had direct communications with Cohen.”
In an indictment unsealed today, Steinberg was charged by a federal grand jury with five counts of conspiracy and securities fraud. He is accused of being part of a conspiracy that began in late 2007 and continued until 2009. The U.S. said he received and traded on illegal tips from Jon Horvath, a former analyst at Stamford, Connecticut- based SAC, on technology companies Dell Inc. and Nvidia Corp (NVDA).
Steinberg pleaded not guilty. Barry Berke, Steinberg’s lawyer, said his client did nothing wrong. SAC, which manages $15 billion, said Steinberg always conducted himself “professionally and ethically” while at the firm. Cohen hasn’t been accused of wrongdoing.
Steinberg, who turns 41 next week, worked at SAC’s Sigma Capital Management unit and was one of 15 portfolio managers handling technology, media and telecommunications stocks before he was put on paid leave in September. He oversaw as much as $200 million in gross assets, a relatively small amount in a firm where some portfolio managers handle as much as $1 billion, according to the people, who asked not to be identified because they didn’t want to discuss their relationship with Steinberg or SAC publicly.
The son of a doctor, Steinberg grew up in Great Neck, a village on Long Island in New York. After graduating in 1994 from the University of Wisconsin in Madison, Wisconsin, he worked at Wall Street research firm Sanford C. Bernstein before joining SAC at the age of 25.
Around the time when he joined, SAC had about 50 employees managing about $450 million, mainly Cohen’s own money, and was starting to transition from a proprietary-trading firm to a hedge fund with outside clients. As part of the process, the firm was expanding its fundamental research and organizing money managers along industries, according to SAC marketing documents dated 2011.
Steinberg was part of a group of technology portfolio managers and analysts who sat together on a row in SAC’s former offices in the General Electric building in Stamford, where the hedge fund occupied a floor, according to two of the people.
The group included David Ganek, who around the turn of the century ran the largest technology-stock portfolio after Cohen, his analyst Anthony Chiasson, and portfolio manager Richard Grodin, who had joined SAC around the time Cohen started the firm, the people said. Richard Choo Beng Lee, a Malaysian-born, Duke University graduate, worked as analyst for Steinberg out of SAC’s west coast offices.
SAC at that time was a close-knit firm. Steinberg was among the employees who socialized with Cohen, taking vacations in places like the Caribbean, going to sporting events and parties at Cohen’s mansion, according to a person with knowledge of the firm. SAC held a beach-themed holiday party in 2000 and handed out videos titled the “SAC Family” that featured a slide show of photos of employees, said two of the people.
Cohen was at Steinberg’s bachelor party in the Bahamas and a guest at his wedding in New York, according to three people. Steinberg married Elizabeth Sims in 1999, according to an announcement in the New York Times. Steinberg also introduced Cohen to Sandy Heller, who is Cohen’s longtime art adviser, said two people.
Cohen has owned works by Damien Hirst and Jeff Koons. This month he bought Pablo Picasso’s “Le Reve” for $155 million, the highest paid by a U.S. collector for work of art, dealers told Bloomberg News.
Steinberg and his colleagues at SAC’s technology teams analyzed markets and gathered information from corporations, helping the hedge fund score returns of 58 percent on average from 1997 to 2000. It was before the U.S. Securities and Exchange Commission introduced in 2000 a rule preventing corporations from disseminating confidential information to select investors before others.
When some of SAC’s technology teams left to start their own hedge funds, Steinberg stayed, moving to SAC’s Sigma unit after that group was started in 2001. There he worked alongside technology portfolio manager Dipak Patel and his analyst Wesley Wang, who had both joined in 2002.
Ganek, after successfully betting against technology stocks amid the 2000 stock market slump, left with Chiasson to start Level Global Investors LP in 2003. The following year Grodin left to co-start a hedge fund, taking Lee with him. Lee later left to co-found his own fund, Spherix Capital LLC.
Several of Steinberg’s former colleagues were eventually swept up in the government’s insider-trading investigation. Lee in 2009 pleaded guilty to securities fraud while at Spherix and cooperated in the investigation of Galleon Group co-founder and convicted insider-trader Raj Rajaratnam. It was the first time a former SAC employee was linked to the government’s probe.
Grodin was among the individuals and firms that were subpoenaed in 2009 as part of the Galleon Group case, a person familiar with the investigation said at the time. He hasn’t been charged with wrongdoing.
The offices of Ganek and Chiasson’s hedge fund, Level Global, were raided by the FBI in 2010, which led to the firm’s liquidation the following year. Chiasson was found guilty in December 2012 of conspiracy to commit securities fraud in an expert-networking case and is waiting to be sentenced. He faces as long as 25 years in prison. Ganek, who was named as an unindicted co-conspirator in Chiasson’s trial, wasn’t charged in that case.
Wang, who left SAC in 2005, pleaded guilty last year to passing illegal tips to people including Patel and was sentenced in January to two years’ probation. Patel, who ran a five-person team before leaving SAC in 2011, hasn’t been charged with a crime.
Steinberg himself emerged in September as an unindicted co- conspirator in an insider-trading scheme involving Horvath, whom he supervised. Steinberg was put on leave after Horvath pleaded guilty to passing nonpublic information to his portfolio manager, who he said traded on the tips.
On Aug. 26, 2008, two days before Dell Inc. (DELL) was set to report second-quarter earnings, Horvath e-mailed Steinberg and another portfolio manager, to warn that the computer maker would miss earnings estimates.
“I have a 2nd hand read from someone at the company,” Horvath said in the e-mail, which provided details on gross margins, expenditures and revenue. “Please keep to yourself as obviously not well known.”
Steinberg responded: “Yes normally we would never divulge data like this, so please be discreet. Thanks.”
Dressed in a dark sweater and slacks, Steinberg was led into a Manhattan federal courtroom in handcuffs. At the 30- minute hearing, his bail was set at $3 million. He was set to be released today.
Steinberg is “caught in the crossfire of aggressive investigations,” Berke said today in a statement. “His trading decisions were based on detailed analysis as well as information that he understood had been properly obtained through the types of channels that institutional investors rely upon on a daily basis.”
“Mike has conducted himself professionally and ethically during his long tenure at the firm,” Jonathan Gasthalter, a spokesman SAC, said in an e-mail. “We believe him to be a man of integrity.”
Steinberg lives in Manhattan in a Park Avenue apartment, which he bought for $8 million in 2009, according to Streeteasy.com. He co-founded Natan, a network of young philanthropists who hold events to promote Jewish culture and Israel, according to its website.
Steinberg and his wife, along with Ganek and his wife and his hedge fund Level Global, were listed as supporters of a New York charity co-founded by Grodin. The charity’s 2007 gala auctioned a breakfast with Cohen at his Greenwich, Connecticut, home.
Steinberg has had health issues recently, according to two people. He had an aortic aneurysm several years ago, the people said. He faces as long as 20 years in prison if convicted.
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