U.S. prosecutors in the insider trading case of SAC Capital Advisors LP portfolio manager Michael Steinberg seek to introduce evidence that shows parallel trading by other fund managers using the same allegedly illegal tips.
Steinberg, whose conspiracy and securities fraud trial is scheduled for Nov. 18 in federal court in Manhattan, is accused of trading on inside tips on Dell Inc. and Nvidia Corp. (NVDA:US) provided by his analyst, Jon Horvath. The scheme generated $1.4 million in profits, prosecutors say.
Assistant U.S. attorneys Antonia Apps and Harry Chernoff said in a memo to the court today that Steinberg was conspiring with a group of analysts at different hedge funds and investment firms who swapped illicit tips on technology stocks that they passed to their portfolio managers. Because the analysts themselves weren’t permitted to trade on the tips, they instead funneled the information to their bosses, prosecutors said.
Apps and Chernoff said evidence about the parallel trading of others at different funds is necessary to show that Steinberg was part of a larger group that also included Level Global Investors LP co-founder Anthony Chiasson and former Diamondback Capital Management LLC portfolio manager Todd Newman. Both men were convicted of insider trading at a Manhattan federal court trial last year.
“The parallel trading evidence provides critical corroboration to the government’s cooperating witnesses, analysts who will testify that they obtained the insider information and passed it on to their bosses so they could make money,” Apps and Chernoff said in court papers.
“The temporal proximity between the trades at the different hedge funds, particularly in combination with the toll records and e-mails, tends to show that all the trades at the different hedge funds were based on the inside information, that is, they were all based on information from a single source.”
Horvath, who pleaded guilty last year and is cooperating with the U.S., will testify for the government as will two analysts who worked for Newman and Chiasson, prosecutors said.
Four cooperating witnesses testified at Chiasson and Newman’s trial, including former Diamondback analyst Jesse Tortora, who worked for Newman, and Spyridon “Sam” Adondakis, a former Level Global analyst who worked for Chiasson.
Chiasson was sentenced to 6 1/2 years in prison, while Newman was ordered to serve 4 1/2 years. Both men are free pending appeal.
Prosecutors cited examples of the parallel trading, saying that on several occasions Horvath passed tips to Steinberg after getting the information from Tortora.
The evidence includes an August 2008 e-mail from SAC Capital showing that Horvath sent Steinberg a message that he’d received the information about Dell Inc. (DELL:US) from “JT,” who prosecutors said was Tortora. Days later, Steinberg sent Horvath a message asking him to “double check” with “JT” about Dell.
Apps and Chernoff said there were “strikingly similar” trades conducted by Steinberg, Chiasson and Newman in Dell and Nvidia.
Steinberg’s lawyer, Barry Berke, declined to comment on the government’s request, which must be ruled on by U.S. District Judge Richard Sullivan, who is presiding over the case.
Steinberg, who denies wrongdoing, is one of eight current and former SAC employees to be charged with insider trading and is the longest-serving employee to face charges. The hedge fund firm indicted by the U.S. on July 25. Prosecutors said SAC allowed employees to engage in insider trades that generated hundreds of millions of dollars over a decade.
SAC, based in Stamford, Connecticut, has pleaded not guilty.
The criminal case is U.S. v. Steinberg, 12-cr-00121, U.S. District Court, Southern District of New York (Manhattan).
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