SAC Manager Prosecutors Win Right to Quiz Witness Motive

U.S. prosecutors won the right to have the jury weighing insider trading charges against SAC Capital Advisors LP's Michael Steinberg hear that the key witness against him wasn’t just testifying against his former boss to save his own skin.

U.S. District Judge Richard Sullivan in Manhattan Sullivan today said former SAC analyst Jon Horvath could be questioned about his motive to cooperate with the U.S. and describe what information he provided in a federal criminal insider-trading probe of SAC, including names of insiders at companies who fed him illegal tips.

The judge said it was “fair game” based on Steinberg’s defense lawyer’s opening argument to jurors that Horvath had lied and fabricated his testimony against Steinberg because there was no one else he could implicate in wrongdoing.

“It goes to the cost-benefit analysis,” Sullivan said at a hearing today outside the jury’s presence. “If he’s already provided information on other individuals he’s reluctant to lie on the stand now.”

Assistant U.S. Attorney Antonia Apps yesterday asked permission to question Horvath about the information he provided after he decided to plead guilty and cooperate in September 2012, a month before his own insider-trading trial was set to start.

Provided Information

“He provided information to the government in connection with the government’s investigation of SAC Capital,” Apps said. “He also provided information about individuals who provided him with information he considered to be material nonpublic information.”

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.

Barry Berke, Steinberg’s attorney, spent five days cross-examining Horvath, suggesting in questions that Horvath fabricated his testimony and blamed Steinberg for his own crimes because he had no one else to provide information on. Four of Horvath’s co-conspirators had already pleaded guilty, he said.

Compliance Practices

Apps said she wants to ask Horvath to talk about whom he identified to the government as his sources of illegal tips, as well as information he divulged on hiring and compliance practices at SAC. She told Sullivan the people include employees at Ingram Micro Inc. and Sun Microsystems Inc. and a sell-side analyst whom she didn’t identify.

Berke argued against allowing Apps to question Horvath about the federal probe of SAC.

Sullivan said it was relevant to ask Horvath whether he understood when he decided to plead guilty and cooperate that SAC was a target of the government’s probe and that if he provided information about the hedge fund, he could benefit from cooperating with the government.

“If he says ‘I don’t know that,’ then that’s an important fact,” for the jury to hear, Sullivan said.

SAC 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 suit filed by prosecutors in Manhattan U.S. Attorney Preet Bharara, who has called SAC “a veritable magnet for market cheaters.”

Billionaire Steven Cohen, the founder of the Stamford, Connecticut-based firm, hasn’t been charged with a crime.

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

(Updates with judge’s ruling in first paragraph.)
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