SAC Steinberg’s Judge Won’t Hand Off Insider Trading CasePatricia Hurtado
The federal judge presiding over the insider-trading prosecution of SAC Capital Advisors LP fund manager Michael Steinberg said he won’t step down from the case, rejecting a request by Steinberg’s lawyer.
U.S. District Judge Richard Sullivan in Manhattan today also scheduled Steinberg’s trial for Nov. 18. Sullivan said at a hearing today he received a letter from Steinberg’s attorney, Barry Berke, asking him to recuse himself.
Berke suggested in court when Steinberg was first charged on March 29 that prosecutors may be “judge shopping” and maneuvered to get the case assigned to Sullivan instead of another judge.
“I am going to keep the case,” Sullivan told lawyers in the case today. “You’re stuck with me, Mr. Steinberg. I’m going to do my best to make sure it’s a fair trial and proceeding.”
Steinberg, 41, worked at SAC’s Sigma Capital Management unit and is the most senior SAC official to be charged in the U.S. government’s wide-ranging probe of insider trading at the $15 billion firm founded by Steven A. Cohen.
He was charged in an indictment with one count of conspiracy and four counts of securities fraud for trading in Dell Inc. and Nvidia Corp. based on illicit tips provided to him by his analyst, Jon Horvath.
Steinberg, who has pleaded not guilty, was one of 15 SAC portfolio managers handling technology, media and telecommunications stocks before being placed on leave in September, said a person with knowledge of the matter. He faces as long as 20 years in prison if convicted.
The judge ruled in December that Steinberg was an uncharged co-conspirator in a $72 million scheme that also involved Level Global Investors LP co-founder Anthony Chiasson, ex-Diamondback Capital Management LLC portfolio manager Todd Newman and analysts who obtained and swapped illegal tips about technology companies.
Newman and Chiasson were convicted by a federal jury in Manhattan in December after a six-week trial presided over by Sullivan. Chiasson is scheduled to be sentenced by Judge Sullivan on May 13.
Sullivan has handed down severe sentences in financial crime cases, sending ex-fund manager James Nicholson to prison for 40 years and former Galleon Group LLC trader Zvi Goffer for 10 years. Yesterday, he sentenced Newman to 4 1/2 years in prison.
Berke today asked Sullivan to set a trial date for February 2014, saying he was still waiting for the government to turn over extensive evidence collected by investigators that included e-mails, instant messages, SAC trading records and telephone call logs that he said could eventually total as many as 62 million pages of documents.
The defense lawyer said he may also need to challenge the government’s use of two court-authorized wiretaps made by the U.S. from the trial, including one involving Sigma Capital portfolio manager Dipak Patel and another of John Kinnucan, the founder of Broadband Research LLC, who is serving a four-year prison term for insider trading. Patel hasn’t been charged with a crime.
“The challenge is going through the documents,” Berke said. “We just have a substantial amount of work to do,” he said.
Assistant U.S. Attorney Antonia Apps said that the government expected their case would last about two and a half weeks.
“It’s the government’s best intention to move forward as expeditiously as possible,” she said. We’d prefer to get a trial date today.”
Sullivan said he’d balance the need for defense lawyers to mount their case and the need to set a working date, saying, “It’s not what Mr. Burke is asking for, but I do think it’s a sufficient amount of time.”
SAC issued a statement when Steinberg was charged saying, he “has conducted himself professionally and ethically during his long tenure at the firm. We believe him to be a man of integrity.”
Sullivan has also issued a ruling in an earlier insider case that defense lawyers claimed lessens the government’s burden of proof. Two other judges in the Manhattan federal courthouse have ruled differently.
While judges are supposed to be randomly assigned to new cases, Berke said in court March 29 that prosecutors may have steered the Steinberg case to Sullivan by bringing it as part of earlier charges against others. By using such a superseding indictment, prosecutors ensured the case was assigned to Sullivan instead of another judge, Berke said.
Steinberg and SAC fund manager Gabriel Plotkin both were recipients of inside information passed to them by Horvath, according to internal e-mails and two people familiar with the matter. Horvath pleaded guilty last year to insider trading charges and Plotkin hasn’t been accused of wrongdoing.
The U.S. says Steinberg was part of a group of portfolio managers, hedge-fund analysts and insiders at technology companies who swapped illicit tips and then traded on the information, reaping millions for their hedge funds. Prosecutors said the scheme began in late 2007 and ran until 2009.
Steinberg, who has worked at SAC Capital since 1997, is one of nine current or former employees of the hedge fund to be tied by U.S. authorities to insider trading. Cohen, who has denied any wrongdoing, hasn’t been charged or sued by the government.
SAC defended Steinberg in a statement issued after he was charged, marking the first time SAC had come out publicly in support of an employee who had been charged in the government’s investigation of insider trading.
“Mike has conducted himself professionally and ethically during his long tenure at the firm,” Jonathan Gasthalter, a spokesman for SAC, said in the March 29 statement. “We believe him to be a man of integrity.”
Horvath, who pleaded guilty in September, told the court he provided illegal tips to his portfolio manager, who then traded on them. His co-conspirators obtained material nonpublic information on Dell in August 2008 and about Nvidia in May 2009 from insiders at the two technology companies, he said.
While Horvath never named Steinberg in court, prosecutors alleged during Chiasson and Newman’s trial that Steinberg was the recipient of Horvath’s tips. The tips earned Horvath’s hedge fund manager about $1.4 million, prosecutors said.
Horvath, who worked at SAC’s Sigma unit from 2006 to 2011, pleaded guilty and is cooperating with the insider-trading investigation by Bharara’s office and the Federal Bureau of Investigation in New York.
Apps said that she expects Horvath will be a government witness at Steinberg’s trial.
The case is U.S. v. Steinberg, 12-00121, U.S. District Court, Southern District of New York (Manhattan).