SAC Manager’s Trial Next Week May Offer View Inside Fund

Photographer: Jonathan Fickies/Bloomberg
SAC Capital Advisors LP fund manager Michael Steinberg exits federal court in New York, on March 29, 2013.

SAC Capital Advisors LP money manager Michael Steinberg lost a bid to delay his insider-trading case, leaving him to face a jury next week in the first of two upcoming trials tied to the hedge fund run by Steven A. Cohen.

SAC Capital sought to plead guilty last week in Manhattan federal court after being indicted for securities and wire fraud. A judge declined to immediately accept the plea, saying she wanted to review documents in the case. Steinberg, 41, had argued that publicity surrounding the U.S. probe of SAC, and the record $1.8 billion plea deal, would compromise his right to a fair trial in the same courthouse.

“Even assuming that the public is forgetful enough to be affected by a three-month delay, there is a strong likelihood that this and related cases will still be in the news three months from now,” U.S. District Judge Richard Sullivan said yesterday, rejecting the request.

Steinberg’s trial is to be followed in January by that of former SAC fund manager Mathew Martoma, also charged with insider trading. U.S. prosecutors have said that, even with the guilty plea by SAC, the probe of individuals tied to the fund, including Cohen, continues. Trading by SAC employees in Gymboree Corp., a children’s-apparel maker, is among the subjects of the investigation, a person familiar with the matter said.

‘Detailed Peek’

Steinberg’s trial will “give us our first really detailed peek behind the curtain of one of the most secretive hedge funds in the world,” said Andrew Stoltman, a Chicago-based securities lawyer. Anthony Sabino, a law professor at St. John’s University in New York, said the trial will make Cohen “more nervous than a cat on a hot stove.”

“These cases have many implications for Cohen. The first implication is, even before the clerk says ‘all rise’ there’s the question whether Steinberg will strike a deal at the last minute to implicate his boss,” Sabino said. With witnesses, “Cohen has got to worry what they’re going to say about him -- was he in the room, what did he do?”

Jonathan Gasthalter, a spokesman for SAC, declined to comment on the trial.

Shutter Firm

SAC agreed to shutter its investment advisory business as part of the accord announced Nov. 4 to end both its prosecution and a money-laundering lawsuit filed by the Justice Department.

The company was a “veritable magnet for market cheaters” in an insider-trading scheme that dated back to 1999, Manhattan U.S. Attorney Preet Bharara said last week.

The fund was held responsible for insider trading by at least eight current or former portfolio managers and analysts who worked there, Bharara said.

Cohen, 57, who founded SAC in 1992, wasn’t named as a defendant in the indictment of the Stamford, Connecticut-based hedge fund. He still faces an administrative action filed by the U.S. Securities and Exchange Commission for his alleged failure to supervise the firm’s activities.

The SAC plea agreement provides “no immunity from prosecution for any individual and does not restrict the government from charging any individual for any criminal offense,” prosecutors wrote in a court filing.

Steinberg has pleaded not guilty to conspiracy and securities fraud, and faces as long as 20 years in prison if convicted. Barry Berke, his lawyer, didn’t respond to an e-mail seeking comment on Sullivan’s ruling.

Steinberg is the longest-serving SAC employee to face charges. Six former SAC portfolio managers or analysts have pleaded guilty to insider trading charges and five are cooperating with the U.S.

Portfolio Managers

He worked at SAC’s Sigma Capital Management unit, and was one of 15 SAC portfolio managers handling technology, media and telecommunications stocks before being placed on leave last year, said a person with knowledge of the matter who asked not to be identified because the matter isn’t public.

In his indictment, unsealed in March, Steinberg was accused of trading on insider tips obtained from convicted SAC technology analyst Jon Horvath.

In December, Sullivan ruled Steinberg was an uncharged co-conspirator in a $72 million scheme that also involved Level Global Investors LP co-founder Anthony Chiasson, ex-Diamondback Capital Management LLC portfolio manager Todd Newman and analysts who obtained and swapped illegal tips about technology companies.

Steinberg, charged with being part of a conspiracy that began in late 2007 and continued until 2009, allegedly received and traded on illegal tips on Dell Inc. and Nvidia Corp. (NVDA)

The case is U.S. v. Steinberg, 12-cr-00121, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Bob Van Voris in federal court in Manhattan at rvanvoris@bloomberg.net; Patricia Hurtado in federal court in Manhattan at

pathurtado@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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