SAC Capital Advisors LP compliance officers and the firm’s outside lawyers questioned Jon Horvath in 2011, when he was an analyst at the firm, about insider trading with expert networker John Kinnucan and the firm Primary Global Research LLC, U.S. prosecutors said.
While Horvath didn’t make any false statements, he was “not forthcoming” about his involvement in any insider-trading scheme during two separate sessions with SAC compliance officers and Martin Klotz, an outside attorney for the fund, prosecutors said in a letter to the court.
Horvath, who worked at SAC’s Sigma Capital Management LLC unit, was first charged with being part of an insider trading ring by the office of Manhattan U.S. Attorney Preet Bharara in February 2012. Horvath pleaded guilty in September 2012 and agreed to cooperate with the U.S. He will be a witness against his former boss, SAC fund manager Michael Steinberg, who goes on trial next week.
“The government presently intends to elicit at trial that, while Horvath did not make any false statements during those interviews, he was not forthcoming about his involvement in the insider-trading scheme to which he subsequently pleaded guilty,” assistant U.S. attorneys Antonia Apps and Harry Chernoff wrote to the judge.
Apps and Chernoff said that the government has learned from Horvath that he was twice questioned by SAC compliance team, Klotz and other lawyers at Willkie Farr & Gallagher LLP. SAC questioned Horvath in the wake of a series of insider-trading cases brought by the U.S. involving the hedge fund’s employees.
Steinberg’s lawyer, Barry Berke, told U.S. District Judge Richard Sullivan said that while SAC and his client had a joint defense, he didn’t intend to use the Horvath compliance interviews as part of his case.
The prosecutors told the judge they provided Steinberg’s legal team with statements that Horvath gave to the U.S. about what he told hedge fund employees and lawyers. SAC and Willkie Farr lawyers have to date refused to share with the government their records of the Horvath interviews, citing attorney-client privilege, the prosecutors said.
If the hedge fund decides to waive confidentiality protection for the documents after the government has presented its case at Steinberg’s trial, the defense could use the records to its advantage, Apps and Chernoff said in their letter to the court.
“The government would request that the court fashion an appropriate remedy to cure any unfairness to the government, such as precluding the defense from eliciting from Horvath (or another witness) any additional information revealed through the privilege waiver,” the prosecutors wrote.
Apps also told Sullivan that the government intended to call as its first witness SAC Chief Financial Officer Dan Berkowitz.
Jonathan Gasthalter, a spokesman for SAC at Sard Verbinnen & Co., declined to comment about the SAC interviews with Horvath.
Kinnucan, founder of Broadband Research LLC, pleaded guilty in July 2012 to obstruction of justice and passing illegal tips to hedge-fund clients about technology companies. In October 2010, Kinnucan announced to his hedge fund clients that he’d rejected a Federal Bureau of Investigation request to secretly record their calls. Weeks later, the FBI raided several hedge funds.
Among the former SAC employees convicted of insider trading charges are Noah Freeman, a fund manager, and portfolio manager Donald Longueuil, who both pleaded guilty in 2011.
Freeman, who agreed to cooperate with the U.S., spoke secretly to the FBI in December 2010, telling agents it was “understood” that providing their best trading ideas to SAC founder Steven A. Cohen “involved providing Cohen with insider information.”
In June 2011, Freeman described his insider trading activities at SAC for a Manhattan federal jury, saying he used expert networking consultants at Mountain View, California-based PGR to get nonpublic information about technology companies.
While at SAC, Freeman testified, he hired PGR consultant Winifred Jiau to get “perfect information” about Nvidia Corp. and Marvell Technology Group Ltd. for at least eight quarters, testifying he made $5 million to $10 million on Nvidia and “broke even” on her tips about Marvell.
Jiau was later convicted and sentenced to prison.
The criminal cases are U.S. v. Steinberg, 12-cr-00121, U.S. District Court, Southern District of New York (Manhattan), and U.S. v. SAC Capital Advisors LP, 13-cr-00541, U.S. District Court, Southern District of New York (Manhattan).