SAC Fund Manager Wants Jury to Hear Insider Discussion

SAC Capital Advisors LP fund manager Michael Steinberg lost a bid for the jury to be told about a secret recording that his lawyer said depicted the money manager as wary of inside information and demonstrated his innocent mindset.

In a recorded November 2010 conversation, Steinberg’s analyst, Jon Horvath, tells a co-conspirator at another fund about a discussion he heard between Steinberg and an expert-networking consultant, John Kinnucan. The recording was made the same day the FBI conducted raids of hedge funds in New York and Boston as part of a U.S. insider-trading probe.

Steinberg’s lawyer, Barry Berke, said the discussion was between Horvath and hedge-fund analyst Spyridon “Sam” Adondakis and recorded by Adondakis during a secret meeting at the Sony Building in Midtown Manhattan. During the conversation, Horvath recounts an earlier conversation between Steinberg and Kinnucan. Horvath didn’t know at the time that Adondakis was secretly working for the Federal Bureau of Investigation.

“Mr. Steinberg is on the phone with Kinnucan and said ‘Is this inside information you’re telling me?’ and Kinnucan is like, ‘No, I swear Mike, It’s not,’” Berke said yesterday, recounting an excerpt from a transcript he wanted to read to the jury. Adondakis and Horvath have pleaded guilty and are cooperating with the U.S. Horvath is on his eighth day on the witness stand and is being questioned by Berke.

Not Proper

U.S. District Judge Richard Sullivan in Manhattan, who is presiding over Steinberg’s insider-trading trial, today rejected the defense’s request, saying the statements Berke wanted the jury to hear weren’t about the alleged insider trading for which he’s on trial. Instead the statements are “are really about his state of mind with respect to what I would call the Kinnucan conspiracy, which he has not been charged with,” Sullivan said.

The judge said presenting such evidence could confuse or mislead jurors hearing Steinberg’s case.

“What I think is being asked, either implicitly or, at least, in reality, is that the jury should infer from his state of mind on Kinnucan that he was not guilty of the Kinnucan conspiracy,” the judge said. “And, from the fact that he was not guilty on the Kinnucan conspiracy, the jury should conclude as propensity evidence that he’s not guilty of the charged conspiracy. And that’s not proper.”

Other Analysts

“You can’t use propensity evidence in that way any more than the fact that Mr. Steinberg engaged in legitimate trades in Coca-Cola or Boeing on the same day that he did the allegedly illegal Dell trades,” the judge said.

Steinberg, 41, is charged with conspiracy and four counts of securities fraud for allegedly making more than $1.4 million by trading on tips Horvath shared with other hedge fund analysts about Dell Inc. and Nvidia Corp. from 2007 to 2009.

SAC, the Stamford, Connecticut-based hedge fund founded and owned by billionaire Steven A. Cohen, agreed to close its investment advisory business as part of a $1.8 billion deal announced Nov. 4 to end a criminal probe and a money-laundering lawsuit filed by the Justice Department. Manhattan U.S. Attorney Bharara has called SAC “a veritable magnet for market cheaters.” Cohen hasn’t been charged with a crime.

Adondakis was working for Level Global Investors LP when, at the behest of the FBI, he secretly recorded a conversation with Horvath on Nov. 22, 2010. Level Global, based in New York, was among the firms searched by the FBI that day.

Two days earlier, the Wall Street Journal had reported that Kinnucan sent an e-mail to 20 hedge fund clients saying he’d refused a request by the FBI to cooperate in a federal insider trading probe and record their conversations. The article said SAC fund managers were among Kinnucan’s clients and had received inside information.

Not Relevant

Berke told the judge yesterday that portions of the conversation between Horvath and Adondakis should be shared with the jury to show Steinberg’s “consciousness of innocence.”

Assistant U.S. Attorney Antonia Apps argued yesterday that the conversation is second-hand hearsay and isn’t relevant to the government’s case against Steinberg because it occured after prosecutors say the insider-trading scheme ended.

In her summary of the dialogue between the analysts, Apps said Horvath told Adondakis that Steinberg had yelled at Kinnucan and “made him cry.”

Kinnucan, the principal and founder of Broadband Research LLC, pleaded guilty last year to passing nonpublic information to hedge fund clients on technology companies including SanDisk Corp., F5 Networks Inc. and OmniVision Technologies Inc. and was sentenced to serve more than four years in prison.

Apps said Adondakis was already secretly cooperating with the FBI at the time of the November 2010 conversation and would later plead guilty in January 2012. Horvath pleaded guilty last year a month before trial. Berke has argued that Horvath only pleaded guilty and implicated Steinberg after realizing that all his co-conspirators were set to testify against him.

The case is U.S. v. Newman, 12-cr-00121, U.S. District Court, Southern District of New York (Manhattan).