SAC Manager Steinberg Warned Analyst the Walls Have Ears

Photographer: Scott Eells/Bloomberg

Jon Horvath, former analyst at Sigma Capital Management LLC, right, exits federal court with his attorney Steven R. Peikin in New York, on Feb. 14, 2012. Horvath, has testified he was part of a circle of hedge funds analysts who swapped illicit tips about technology companies that they funneled to their fund managers. Close

Jon Horvath, former analyst at Sigma Capital Management LLC, right, exits federal court... Read More

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Photographer: Scott Eells/Bloomberg

Jon Horvath, former analyst at Sigma Capital Management LLC, right, exits federal court with his attorney Steven R. Peikin in New York, on Feb. 14, 2012. Horvath, has testified he was part of a circle of hedge funds analysts who swapped illicit tips about technology companies that they funneled to their fund managers.

The lawyer for SAC Capital Advisors LP money manager Michael Steinberg, accused of insider trading, challenged testimony of a former fund analyst that he sought secrecy in passing on data because it was an illegal tip.

The analyst, Jon Horvath, has testified he was part of a circle of hedge funds analysts who swapped illicit tips about technology companies that they funneled to their fund managers. He told the jury at Steinberg’s trial in Manhattan federal court the inside information that he passed to his boss came from Jesse Tortora, an analyst at Diamondback Capital Management LLC.

Barry Berke, Steinberg’s lawyer, yesterday questioned Horvath about an August 2008 e-mail in which he asked the fund manager to keep “the Dell Stuff especially on the down low” because “JT asked me specifically to be extra-sensitive with the info.” Berke asked whether Horvath wrote the message because his boss had directed him to be circumspect with information they developed out of concern that a trade could be spoiled or “crowded” if word leaked out to other traders.

“Didn’t he tell you on your first day at SAC that ‘the walls have ears?’” Berke asked.

Horvath said he didn’t recall.

Securities Fraud

Steinberg, 41, is charged with conspiracy and four counts of securities fraud for allegedly using inside information to make more than $1 million by trading on Dell Inc. in August 2008 and more than $400,000 on a trade in Nvidia Corp. (NVDA) in 2009.

SAC, the Stamford, Connecticut-based hedge fund founded and owned by billionaire Steven Cohen, agreed to close its investment advisory business as part of a $1.8 billion deal announced Nov. 4 to end a criminal probe and a money-laundering lawsuit filed by the Justice Department. Manhattan U.S. Attorney Bharara has called SAC “a veritable magnet for market cheaters.” Cohen hasn’t been charged with a crime.

Steinberg is the first of eight current or former SAC employees charged by the U.S. to go to trial. Besides Horvath, five other people in the insider-trading ring have pleaded guilty and are cooperating with the U.S.

Horvath, who pleaded guilty and agreed to cooperate with the government, testified earlier in the trial that he telephoned Steinberg shortly after getting a call from Tortora, who provided him with Dell’s final earnings numbers that were to be announced 10 days later.

The former analyst testified he sent Steinberg an e-mail on Aug. 18, 2008, after giving him the figures because he forgot to mention that Tortora had asked him to be careful about letting others know he was the source of the illegal tip.

In his third day of cross examining the government witness, Berke showed jurors an e-mail Steinberg sent Horvath on his first day at the hedge fund.

‘Be Wary’

“Be wary, especially at SAC where the walls have ears and Steve Cohen has the largest buy-side network of them all,” Steinberg wrote.

“Yeah, that’s what he e-mailed me on my first day,” Horvath said.

Berke asked Horvath if he’d ever explicitly told Steinberg during the August 2008 calls that the information he was passing him about Dell was based on illegal tips.

“No, I never told Mike Steinberg explicitly that it was illegal information,” Horvath said.

Berke has told U.S. District Judge Richard Sullivan, who is presiding over the case, that he expects his cross-examination of Horvath will continue until Dec. 9.

In a related development, former Dell supply manager Daniel DeVore, who was accused of providing some of the tips that reached Steinberg, was sentenced yesterday to time served for aiding the U.S. insider-trading probe of fund managers and analysts. DeVore helped the government build cases against Tortora, Horvath, Steinberg and two other fund managers who were convicted at trial last year, prosecutors said.

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

To contact the reporter on this story: 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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