SAC Capital Advisors LP fund manager Michael Steinberg joked that his analyst’s report to SAC founder Steven A. Cohen on a trade might raise concerns with compliance lawyers because of his mention of company contacts.
Jon Horvath, the former SAC analyst, told the Manhattan federal jury at Steinberg’s insider-trading trial that he recommended that Steinberg and SAC trade on Sun Microsystems Inc. in late 2007 and 2008. Horvath said he had obtained information from a business school friend, Davide Pacchini, who worked for the company at the time.
Horvath, who is a government witness against Steinberg, testified he wrote a trading recommendation and sent it to the “Steve Ideas” e-mail address that he said went to Cohen and about a dozen top employees at the Stamford, Connecticut-based fund.
“My edge is contacts at the company and their distribution chain,” Horvath wrote in his memo, which was sent both to “Steve Ideas” and to Andrew Lester, a senior portfolio manager at SAC’s Sigma Capital unit, where Horvath and Steinberg worked.
Lester sent an e-mail to Steinberg and Horvath, saying, “Nice write up. Keep it up!” Steinberg, in a joking reference to lawyers in SAC’s compliance department, replied, “I suspect the line about the company may wake up some of our legal eagles. . .fortunately, to my knowledge, those guys don’t actually work there anymore.”
Horvath, in response to questioning by a prosecutor, testified that SAC’s compliance staff and lawyers were actually employed at the fund when Steinberg made his sarcastic comment.
Steinberg, 41, who has pleaded not guilty to conspiracy and four counts of securities fraud, is the first of eight current or former SAC employees charged by the U.S. to go to trial.
He is accused by prosecutors in the office of Manhattan U.S. Attorney Preet Bharara of making more than $1.4 million in illegal profits in Dell Inc. and Nvidia Corp. by trading on tips Horvath got from a group of friends who were analysts at other hedge funds from 2007 to 2009.
Horvath, who pleaded guilty just before his trial was to start last year, has told the federal jury that he funneled illegal tips from insiders at technology companies to Steinberg. Six people charged in the insider-trading ring have pleaded guilty and are cooperating with the U.S.
Defense lawyer Barry Berke told jurors in his opening statements that Horvath implicated Steinberg when he realized his former co-conspirators were set to testify against him and “traded his freedom for that of another.”
Horvath today described for jurors a series of conversations he had with Steinberg in the wake of the arrest of fund manager Raj Rajaratnam on insider trading charges in October 2009.
Horvath said Steinberg told him that “I’ve been talking to some people and it turns out the further you are from the source, the more difficult it is to connect you to the source. Therefore, in this situation, because I’m so far from the source, I’m OK.”
Horvath said he had another discussion with Steinberg about an SAC database called “Tamale” in which analysts and fund managers placed the data they collected for making trades. The U.S. has shown jurors e-mails Horvath sent to Steinberg and members of Steinberg’s group in Tamale that frequently cited nonpublic information he obtained from his friend, Jesse Tortora, a Diamondback Capital Management analyst who gave him tips on Dell. Some of Horvath’s notes in Tamale included references to “JT” and “Dell Checks.”
Horvath said that shortly after Rajaratnam’s arrest, Steinberg told him, “I was trying to have this Tamale database removed but I was told by SAC I just can’t do it. I just can’t have it removed.”
Asked by a prosecutor if he knew who Steinberg was referring to when he mentioned SAC, Horvath replied, “it wasn’t clear if he meant SAC management or SAC compliance.”
Jonathan Gasthalter, a spokesman for SAC, declined to comment on the trial.
The case is U.S. v. Newman, 12-cr-00121, U.S. District Court, Southern District of New York (Manhattan).