Ex-Diamondback Capital Management LLC analyst Jesse Tortora told a jury he was the conduit for illicit tips on technology companies that SAC Capital Advisors LP fund manager Michael Steinberg later traded on.
Tortora, the first of four witnesses cooperating with the U.S. who are scheduled to testify against Steinberg, said that he passed the inside information to his friend, Jon Horvath, who was Steinberg’s analyst at SAC. The two friends were part of a group of hedge-fund analysts who pooled their illegal tips and funneled them to their bosses, Tortora said. Tortora and Horvath both pleaded guilty.
Steinberg, 41, is on trial in federal court in Manhattan charged with securities fraud and conspiracy in a scheme that allegedly earned him more than $1.4 million by trading on tips that Horvath provided on Dell Inc. and Nvidia Corp. He’s the first of eight current or former SAC employees charged by the U.S. to go to trial.
“I told Jon I was passing or passed inside information to Todd Newman and he in turn told me he was communicating that information to Mike Steinberg,” Tortora testified. “He told me he directly worked for Mike Steinberg and that Mike had status at SAC. He told me that Mike was ‘Steve Cohen’s right-hand man.’”
Billionaire Cohen is the founder and owner of SAC. He hasn’t been charged with a crime.
Tortora said he started sharing nonpublic information he obtained with Horvath and at least four other analysts at other hedge funds soon after taking a job at Diamondback working for Newman, a fund manager, in mid-2007. Tortora said they all wanted to improve their overall performance.
“It allowed us to be more effective, more efficient, and more profitable than working alone,” Tortora said.
Members of the group included Ron Dennis, who at the time worked as an analyst at SAC’s CR Intrinsic unit, and Sandeep “Sandy” Goyal, a Neuberger Berman analyst who once worked at Dell, Tortora said. Goyal had a friend who worked at Dell who supplied the group with nonpublic information ahead of earnings, Tortora said.
In August 2008 Goyal provided the group with information that Dell was about to miss earnings estimates, which Tortora passed on to his friends. The government alleges that Steinberg made more than $1 million by shorting Dell stock after getting tipped by Horvath.
Assistant U.S. Attorney Harry Chernoff showed jurors dozens of e-mails Tortora exchanged with the group ahead of the Dell earnings announcement and after Steinberg made his successful trades.
Thirteen minutes after Dell announced it was going to miss earnings estimates on Aug. 28, 2008, Horvath sent Tortora an instant message that stated, “Nice Man!!!!! You nailed it!!!!”
Tortora testified at Newman’s insider trading trial last year in the same courthouse. Newman, who was found guilty by a jury in a scheme that reaped at least $72 million, was sentenced to 4 1/2 years in prison and remains free as he fights his conviction.
Earlier today, the government called as its first witness Dan Berkowitz, SAC’s chief financial officer, who testified that from 2007 to 2009, SAC had assets under management of $10 billion to $17 billion.
He said that in 2007, when the U.S. said the insider-trading scheme began, SAC paid Steinberg a $4.94 million bonus and that his portfolio generated more than $27 million. In 2008, he received a bonus of more than $1.54 million and his portfolio made more than $13.6 million. In 2009, his bonus was more than $2 million and his portfolio made more than $18 million in profit, Berkowitz.
If a fund manager had a particularly good idea, Berkowitz said it could be pitched to Cohen for his personal trading in the “Cohen Account.” Berkowitz said an internal review of SAC records show that one of Steinberg’s recommended trades offered to Cohen in 2009 generated a profit and Steinberg was paid an extra bonus of $26,000.
SAC records also show that at the end of 2008, Steinberg paid the Horvath two bonuses for a total of more than $722,000.
Steinberg is the longest-serving SAC employee of those the U.S. has charged in its insider-trading probe. At least six former SAC employees have pleaded guilty and are cooperating with the government.
SAC, which was charged with insider trading in July, offered this month to plead guilty and pay a record $1.8 billion fine to the U.S. A federal judge hasn’t decided whether she will accept the plea.
The case is U.S. v. Steinberg, 12-cr-00121, U.S. District Court, Southern District of New York (Manhattan).