SAC Capital Advisors LP fund manager Michael Steinberg was described by a federal prosecutor as an unindicted co-conspirator in the insider-trading scheme that involved his former analyst.
Assistant U.S. Attorney Antonia Apps in Manhattan made the allegation yesterday at a hearing outside the jury’s presence at the trial of Todd Newman, a former portfolio manager at Stamford, Connecticut-based Diamondback Capital Management LLC, and Anthony Chiasson, co-founder of Level Global Investors LP. The U.S. says Newman and Chiasson made trades based on illegal tips obtained from company insiders and provided by analysts who worked for them.
Apps told U.S. District Judge Richard Sullivan the government was seeking to show jurors e-mails involving Steinberg when Newman’s lawyer objected, arguing that prosecutors failed to prove that Steinberg was a member of the conspiracy or show any evidence proving that Steinberg knew that information he had received about Dell Inc. wasn’t public.
“I am not aware of any evidence suggesting that Mr. Steinberg joined in his conspiracy regarding Dell or any other stocks and I don’t think there is sufficient evidence,” said Steve Fishbein, the defense attorney.
Sullivan told lawyers that he will hold a hearing today to decide whether to allow prosecutors to show jurors e-mails involving Steinberg and whether to make a legal determination that Level Global co-founder David Ganek is also an unindicted co-conspirator in the case.
Chiasson and Newman have pleaded not guilty to the charges of securities fraud and conspiracy.
Barry Berke, a lawyer for Steinberg, didn’t immediately respond to voice-mail and e-mail messages yesterday seeking comment on the government’s allegation. Jonathan Gasthalter, a spokesman for SAC, didn’t immediately return a voice-mail message left at his office seeking comment on the prosecutor’s claim.
Apps told Sullivan that the government views Ganek as an unindicted co-conspirator during a Dec. 3 hearing outside the jury’s presence, saying prosecutors seek to show jurors e-mails involving Ganek.
Steinberg and Ganek haven’t been charged with a crime by the government.
Ganek’s lawyer, John Carroll, said in a statement that there’s no evidence that Ganek knew about any inside information.
A lawyer for Chiasson said in a memo to Sullivan there’s no evidence backing prosecutors’ claim that Ganek is a co-conspirator.
“Mr. Chiasson respectfully submits that the government has failed to establish by a preponderance of the evidence that Mr. Ganek was a member of the alleged conspiracy,” Greg Morvillo, a lawyer for Chiasson, wrote.
Morvillo said prosecutors allege that Spyridon “Sam” Adondakis, 41, a former technology analyst who worked for Chiasson at the New York-based fund, testified that he passed information to Chiasson and Ganek during an Aug. 11, 2008, meeting at the fund and an Aug. 27, 2008, telephone call. Adondakis has pleaded guilty and is cooperating with the U.S.
“The government’s theory that Mr. Ganek was a co-conspirator is contradicted by its own witness,” Morvillo said.
Morvillo said Adondakis testified that on Aug. 11, 2008, he met with Chiasson and Greg Brenner, an analyst at the fund, and shared with them “what has been referred to as the Dell Expected Value.” Brenner hasn’t been accused of wrongdoing by the government.
“Mr. Adondakis testified that immediately following this meeting, Messers. Chiasson and Brenner brought the analysis into Mr. Ganek’s office and met with him,” Morvillo said.
The defense has evidence it hasn’t yet submitted that “demonstrates that Mr. Ganek was at his home in Southampton that day, not in Level Global’s office,” Morvillo said.
Morvillo also said Adondakis testified that he never told Ganek the source of his Dell information or that it was illegally obtained.
“Once again, the government’s own witnesses upends its argument,” Morvillo said. “The government’s conclusions with regard to those events are firmly undercut by the totality of other evidence in the record, including their own witness’s testimony.”
Adondakis was the third cooperating witness to testify at the trial in a group that also included Jesse Tortora, a former analyst who worked for Newman.
Six men have pleaded guilty to swapping the illegal tips from insiders at technology companies as part of the insider-trading scheme.
Apps contends Ganek knew Adondakis was getting inside tips.
“There is substantial circumstantial evidence to support the inference, based on the preponderance standard, that Mr. Ganek did in fact that know Mr. Adondakis’s information came from sources inside those companies, and accordingly, Mr. Ganek is a co-conspirator,” she wrote in a Dec. 4 filing.
Asked for comment on the government’s claims about his client, Carroll said: “The government says my client is a co-conspirator because of a meeting, a phone call and some loose language in e-mails. But David Ganek was not in the office the day of the meeting, there is no record of him being on the phone call and the key witness testified multiple times that he was not told about any inside information.”
In court yesterday, Sullivan read aloud one of the e-mails that the government seeks to introduce at the trial, which the judge said was written by Steinberg in response to analyst Jon Horvath.
“In response to a Horvath e-mail about gross margins missing, Steinberg says, ‘Yes, normally we would never divulge data like this, so please be discreet. Thanks.’ That doesn’t look good.”
Fishbein argued that the e-mail the judge cited could also have another interpretation.
“I think we have heard that hedge funds have proprietary positions and they generally don’t want everybody in the market to know what they are trading because that can interfere with the trade,” he said. “So I’m not sure that is consistent necessarily with anything being unlawful or part of a conspiracy.”
When Horvath pleaded guilty, he admitted passing nonpublic information about technology companies to his portfolio manager. Horvath didn’t name Steinberg during his guilty plea. Horvath is cooperating with the U.S.
During his Sept. 28 plea, Horvath told Sullivan that he and his co-conspirators obtained material nonpublic information on Dell in August 2008 and about Nvidia Corp. in May 2009 from insiders at the two technology companies.
Sullivan instructed jurors to return to court on Dec. 10.
The case is U.S. v. Newman, 12-00121, U.S. District Court, Southern District of New York (Manhattan).