SAC Capital Probe Yields New Insider-Tipping Arrest

The probe of SAC Capital Advisors LP, which has led to insider-trading charges against the hedge fund and eight SAC employees, has snared an outside analyst who is accused of giving illegal tips to a former SAC manager.

Sandeep Aggarwal, 40, of Gurgaon, India, was arrested July 29 by agents of the Federal Bureau of Investigation in San Jose, California, said Peter Donald, an FBI spokesman in New York. He is alleged to have provided inside information to ex-SAC portfolio manager Richard Lee related to a deal involving Yahoo! Inc. and Microsoft Corp.

SAC Capital, owned by billionaire Steven Cohen, last week was indicted in what U.S. prosecutors called an unprecedented, decade-long insider trading scheme stemming from the government’s six-year crackdown on Wall Street crime.

While Cohen wasn’t charged, a grand jury indicted the fund he founded, saying it had become “a magnet for market cheaters.” The U.S. alleged there had been a “failure by the fund owner and others” at SAC, and described separate insider trading schemes by eight SAC fund managers and analysts.

They include Noah Freeman, Donald Longueuil, Jon Horvath, Wesley Wang, Mathew Martoma, Richard Choo-Beng Lee, Michael Steinberg and Lee. Steinberg and Martoma have pleaded not guilty and both are scheduled to go on trial in November. The others have pleaded guilty and, with the exception of Longueuil, are cooperating with the U.S.

Aggarwal formerly worked at Collins Stewart LLC in San Francisco, said a person familiar with the situation, who requested anonymity because the matter wasn’t public. Andrea Sergautis, a spokeswoman for Canaccord Genuity in Toronto, which acquired Collins Stewart, didn’t respond to a call seeking comment on Aggarwal’s case.

Pending Deal

To date, 83 people have been charged by Manhattan U.S. Attorney Preet Bharara’s office with insider trading, with 74 either pleading guilty or being convicted at trial. Eight have pleaded not guilty and are awaiting trial while one man is a fugitive.

Bharara said yesterday Aggarwal is charged with one count of conspiracy to commit securities fraud and one count of conspiracy to commit wire fraud for passing along an inside tip about the Yahoo!-Microsoft venture.

“Aggarwal leveraged his contacts in the technology industry to obtain an illegal edge in the form of inside information about a highly anticipated development, then lied about his criminal conduct,” Bharara said in a statement.

Aggarwal provided material nonpublic information about the companies’ strategic partnership in Internet search and advertising to two different hedge funds, including SAC, the U.S. alleged in a criminal complaint.

Within Weeks

According to the U.S., on July 9, 2009, Aggarwal learned from a friend at Microsoft about the partnership discussions and that a transaction was likely to be announced within weeks.

The next day, Aggarwal gave the information to Lee, then at SAC, and told him he had heard it from a source, whom Aggarwal described as “a senior guy” at Microsoft, according to the U.S.

Aggarwal told Lee that Yahoo executives had been meeting with senior Microsoft officials at Microsoft’s offices and that an announcement would be made on the agreement within two weeks, the U.S. alleged in the complaint.

Aggarwal spoke to about 14 traders or portfolio managers at various hedge funds about the Microsoft-Yahoo partnership, the U.S. said. Prosecutors also alleged in the criminal complaint that a Microsoft executive working in the Bing division is a co-conspirator in the case. They didn’t name the executive.

Retired Employee

One of the hedge funds was Millennium Management LLC, the person familiar with the matter said. The hedge fund reported to Aggarwal’s employer that it suspected he was passing inside information, the person said. According to the criminal complaint, FBI agent Ronan Byrne interviewed Aggarwal, who later allegedly told him that, prior to becoming a research analyst, he’d worked at Redmond, Washington-based Microsoft.

Tripp Kyle, a spokesman for New York-based Millennium, declined to comment. Peter Wootton, a spokesman for Microsoft, didn’t immediately return a call seeking comment about Aggarwal’s case.

As a result of Aggarwal’s tips, SAC Capital on July 10, 2009, bought “several hundred thousand shares of Yahoo stock” while Lee bought 25,000 Yahoo shares in his personal account, according to court papers.

Hedge Funds

When questioned by his employer on July 20, 2009, about tips he was providing to hedge funds, Aggarwal denied having any inside information and claimed his source was a person who had been retired from Microsoft for years, prosecutors alleged.

Lee pleaded guilty on July 23 to trading on information provided by a source at Yahoo and is cooperating with the U.S.

Aggarwal, who faces as long as 25 years in prison if convicted on both charges, is also being sued by the U.S. Securities and Exchange Commission.

He made an initial appearance yesterday before U.S. Magistrate Judge Nandor Vadas in federal court in San Francisco. The judge agreed to release Aggarwal on a $500,000 personal recognizance bond and ordered him to appear in federal court in New York on Aug. 2.

“He’s willingly returning to New York,” said Sam Braverman, a lawyer in New York who’s representing Aggarwal in both the SEC and the criminal cases.

Telephone Call

Evidence against Aggarwal includes telephone records, documents from SAC Capital and a recorded telephone call between Aggarwal, Lee and a sales executive at Aggarwal’s firm on July 10, 2009, the U.S. said in the complaint. During the phone call, Aggarwal conveyed material nonpublic information about the Yahoo-Microsoft partnership, prosecutors said.

Lee, who managed a $1.25 billion portfolio at SAC and worked at the firm until March, focused on “special situations” including mergers and acquisitions, private-equity buyouts and corporate restructurings in publicly traded companies, Bharara’s office said.

He pleaded guilty to conspiracy and securities fraud, admitting that in 2009 he got illegal tips about Yahoo and 3Com Corp., generating more than $1.5 million in profits for the hedge fund, according to the SEC’s lawsuit.

The SEC filed an amended complaint in Lee’s case yesterday, adding Aggarwal as a defendant and saying that its investigation is continuing.

The criminal case is U.S. v. Aggarwal, 13-mj-01877; the SEC case is SEC v. Lee, 13-cv-05185; the SAC case is U.S. v. SAC Capital Advisors LP, 13-cr-00541, U.S. District Court, Southern District of New York (Manhattan).