Ex-SAC Analyst Describes Aid to U.S. Inside-Trading Probe

An ex-SAC Capital Advisors LP analyst, concluding his testimony at the insider-trading trial of his former boss Michael Steinberg, told the jury his cooperation with the government included a larger probe of the hedge fund.

Jon Horvath, a former technology analyst for Steinberg at SAC’s Sigma Capital unit, was on the stand for nine days as a government witness against Steinberg. Horvath told the Manhattan federal jury that he passed secret tips about Dell Inc. and Nvidia Corp. that Steinberg used to reap more than $1.4 million.

U.S. District Judge Richard Sullivan today allowed prosecutors to question the former analyst about his motivations for testifying against Steinberg. The judge ruled that questions posed by Steinberg’s defense lawyer suggested that Horvath only pleaded guilty six weeks before trial to save his own skin.

“The jury should know he’s provided information against the ‘White Whale’ that has been the focus of this investigation, that has been caught,” Sullivan said, referring to SAC Capital. He later said during the hearing, “Otherwise, the jury is left with the misimpression that the only way out of this is Steinberg.”

Prison Term

The judge also noted that Steinberg’s lawyer, Barry Berke, told jurors in opening arguments that Horvath fabricated the allegations because there was no one else he could implicate in wrongdoing and he had faced a maximum 45-year prison term.

Prosecutors declined to elicit testimony from Horvath that SAC Capital founder Steven A. Cohen. In court papers filed before trial, prosecutors said Cohen, who held a long position in Dell in Aug. 26, 2008, immediately “began liquidating his entire position” in the computer-maker within minutes of receiving an e-mail from Horvath. Cohen hasn’t been charged with a crime.

Upon learning the fund’s billionaire founder held a long position in Dell just days before the company was set to announce earnings, prosecutors said Horvath sent an Aug. 26, 2008, e-mail to Cohen warning him he had information the computer-maker would miss Wall Street’s earnings estimates.

“I have a 2nd hand read from someone at the company,” according to Horvath’s e-mail that prosecutors have shown the jury.

New Questioning

Sullivan initially told prosecutors he would allow Horvath to testify about Cohen’s trading after receiving his e-mail, then warned them it would be “opening up a can of worms” and prompt a new round of questioning by Steinberg’s lawyer. The trial was scheduled to end before Christmas, and Sullivan has said jurors have been asking about their travel plans.

“I don’t want to have a mini-trial on Mr. Cohen,” he said. “The witness has been on the stand for about two weeks of a four-week trial.”

While prosecutors said before trial that they wouldn’t present evidence about Cohen’s trading in August 2008, they sought yesterday to include it to refute Berke’s suggestion that Horvath was lying when he implicated Steinberg for insider trading in Dell stock in August 2008 and that the analyst’s tip was meaningless to SAC portfolio managers.

Prosecutors said Cohen, who owned about 500,000 shares of Dell, reversed his trading strategy after receiving Horvath’s e-mail. By the time Dell announced its earnings on Aug. 28, 2008, Cohen avoided losses of $1.7 million in his portfolio and another $1.8 million in a second portfolio, the U.S. said.

Inside Information

When Horvath resumed his testimony today, Assistant U.S. Attorney Antonia Apps didn’t question him about Cohen’s trades.

Horvath said he provided government investigators with the identities of his sources of inside information. They included an employee at Ingram Micro Inc.; a friend from business school who worked at Sun Microsystems Inc.; an individual employed at an unidentified investment bank and a consultant he didn’t identify.

“Did you have an understanding at any time that the information you were providing was being used in connection with insider trading of SAC Capital as a company?” Apps asked.

“Yes,” Horvath replied.

Apps asked about Horvath’s agreement with the government and a letter that prosecutors will write to the sentencing judge on his behalf.

Detail Crimes

“My understanding is that it’s going to detail the crimes I’ve committed and the help or cooperation that I’ve given,” Horvath said.

“And that includes all the cooperation you’ve given?” Apps asked.

“Yes,” Horvath said.

Apps asked Horvath who will make the decision on his sentence.

“The sentencing judge,” Horvath said.

Steinberg, 41, is charged with conspiracy and four counts of securities fraud.

SAC, based in Stamford, Connecticut, agreed to plead guilty and 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 suit filed by prosecutors in the office of Manhattan U.S. Attorney Preet Bharara. Bharara has called SAC “a veritable magnet for market cheaters.”

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

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