SAC’s Steinberg Pins Hope For Leniency to Charity Claims

Michael Steinberg, the longest-serving SAC Capital Advisors LP hedge fund manager to be convicted of insider trading, should be spared years in prison because of what his supporters call his good works.

Federal prosecutors said he deserves as much as a 6 1/2 years for using inside tips on tech stocks to reap more than $1.8 million at the hedge fund run by Steven A. Cohen. Steinberg seeks less than a third of that, citing in part his philanthropy -- an argument that has worked before.

From co-founding a group that’s donated more than $8.7 million for work such as providing clean water and medicine in Africa, to raising money for a friend’s organ transplant with a bake sale, Steinberg has shown he deserves leniency at his sentencing today in Manhattan federal court, his supporters told the judge.

“Michael has made a difference in the lives of so many,” wrote Felicia Herman, head of Natan, the group Steinberg helped start, in a letter to U.S. District Judge Richard Sullivan, who will weigh such plaudits against the nature of his crimes.

Steinberg’s Dec. 18 conviction, along with that of SAC fund manager Mathew Martoma two months later, capped a seven-year U.S. probe of the Stamford, Connecticut-based firm and Cohen, its billionaire founder. Steinberg and Martoma were among eight SAC employees convicted of insider trading, part of what the U.S. labeled a culture of criminality at the now-renamed firm.

Rajat Gupta

If Steinberg wins a reduced sentence, he won’t be the first trader whose charity saved him some prison time.

In 2012, Rajat Gupta, a former Goldman Sachs Group Inc. director convicted of tipping Galleon Group LLC co-founder Raj Rajaratnam, was sentenced to two years instead of the maximum 10-year term sought by the government. U.S. District Judge Jed Rakoff cited his efforts to improve world health and fight AIDS.

Steinberg may have a harder time persuading Sullivan, who has imposed some of the harshest insider trading sentences in recent memory, including a decade-long term to Galleon Group trader Zvi Goffer.

Sullivan, who yesterday rejected a bid by Steinberg to set aside his guilty verdict, may not have the last word, though. The U.S. appeals court overseeing New York federal judges last month criticized instructions Sullivan gave jurors at Steinberg’s trial. Defense lawyers argued the judge may have inadvertently tipped the scale toward a guilty verdict.

If the U.S. Court of Appeals reverses the conviction, Steinberg may be back in court for another trial.

Elaborate Conspiracy

Prosecutors are urging Sullivan to impose a term that’s within U.S. sentencing guidelines, which are 5 1/4 to 6 1/2 years. They said Steinberg, convicted of five counts of fraud and conspiracy, was part of an elaborate conspiracy that tapped numerous sources for illicit information.

“Steinberg benefited from a much more wide-ranging conspiracy in which multiple analysts pursued multiple sources,” they told Sullivan in court papers.

Prosecutors have said Cohen avoided losses of more than $3.6 million in 2008 by trading on some of the same tips as Steinberg. Cohen’s lawyer, Martin Klotz, said in a filing with the Securities and Exchange Commission that there’s no evidence Steinberg tipped Cohen.

Jonathan Gasthalter, a spokesman for Point72 Asset Management LP, formerly SAC Capital, declined to comment on Steinberg’s sentencing.

SAC Guilty

Last month, a judge approved the hedge fund’s guilty plea in which it admitted to gaining hundreds of millions of dollars in illegal profits through insider trades. SAC agreed to pay $1.8 billion. Cohen, who hasn’t been charged with a crime, faces an administrative action by the SEC, which claims he failed to supervise SAC’s activities, including those of Steinberg and Martoma. Cohen has denied any wrongdoing.

Steinberg, 42, began working for Cohen in 1996 at the age of 25 and eventually managed a $196 million portfolio.

He is the closest Cohen associate to face prison. Now, friends and supporters are rallying to his side.

Herman, the head of Natan, told Sullivan that Steinberg’s role has been “critical” to the success of the group, which seeks to promote Jewish culture and Israel while sponsoring philanthropic initiatives worldwide.

Africa Group

One Natan grantee is Innovation: Africa, which Herman said is a nonprofit that brings “sustainable Israeli technologies to African villages.” The group states on its website that it has provided clean water, food and medical care to people in Ethiopia, Tanzania, Malawi and Uganda.

Steinberg’s charity has also touched some closer to home, according to letters sent to Sullivan.

Stephanie Reckler, president of the Park Avenue building where Steinberg lives in an $8 million apartment, recalled how the hedge fund manager opened his home to doormen and staff during Hurricane Sandy.

Sandy Heller, an art adviser to Steinberg and Cohen, told the judge he almost cried when he found Steinberg playing with Heller’s son one Sunday afternoon, in the midst of the trial.

“How Michael, who was the one actually going through the trial, could muster the patience to help my son figure out how to play a video game, was amazing to me,” Heller wrote.

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