US prosecutors told a jury that Michael Steinberg, a former SAC Capital portfolio manager, “broke the law” by trading on secret business information obtained by his research analyst’s “circle of friends” as the government’s latest insider trading trial began Wednesday.
Lawyers for Mr Steinberg painted a different picture saying their client was betrayed by his former research analyst, Jon Horvath – a key government witness – who chose on the eve of his own criminal trial his “self interest over the truth” and claimed that Mr Steinberg was involved in the criminal scheme.
Barry Berke, Mr Steinberg’s attorney, told the jury Mr Horvath was “rewriting history” and twisting innocent words in emails into nefarious meanings. He said Mr Steinberg did not know and had no communication with analysts and company insiders who provided Mr Horvath with confidential information.
Mr Horvath has pleaded guilty and is expected to testify for the government to support allegations that Mr Steinberg traded Dell stock after learning the computer maker would miss quarterly earnings estimates in August 2008.
Earlier this month, ending nearly a decade-long investigation, SAC pleaded guilty to insider trading in connection to the Dell trade and others, and agreed to wind down its operations and pay more than $1.8bn in fines. Six former SAC analysts or portfolio managers have pleaded guilty to insider trading while at the hedge fund. The government has stressed that its investigation is continuing.
SAC founder Steve Cohen has not been charged with any criminal wrongdoing.
The stakes are high for the US attorney’s office in Manhattan, which has not lost an insider trading case since its widespread crackdown started in 2009.
Prosecutor Antonia Apps told the jury of nine women and three men that Mr Horvath was close to being fired in 2007 and after one big trading loss, Mr Steinberg told him he needed an edge, or “proprietary inside information the defendant could make money off of”.
The next summer Mr Horvath called Mr Steinberg from his vacation in Mexico to relay he learnt from his source about Dell’s disappointing earnings, Ms Apps said. One minute after the men spoke, Mr Steinberg allegedly sold Dell shares short, in effect betting the price would drop. When Dell announced earnings a few days later its shares fell 14 per cent, the biggest drop in nearly eight years, and Mr Steinberg made more than $1m in profits, Ms Apps said.
“Secret company information can be a valuable thing,” Ms Apps said. Mr Steinberg “got an illegal edge over ordinary investors who played by the rules . . . he broke the law”, she said.
Mr Horvath would also tell the jury that Mr Steinberg knew it was illegal and asked him what he would say to the Federal Bureau of Investigation if asked about Dell, the prosecutor said.
The courtroom in lower Manhattan was packed with rows of supporters, both friends and family, seated behind Mr Steinberg at the defence table.
Mr Berke, his lawyer, sought to appeal to the jury that Mr Steinberg, a University of Wisconsin graduate who studied history and philosophy and married his college sweetheart, was not a traditional hedge fund manager.
Mr Steinberg joined SAC after college and rose through the ranks to manage more than $100m. He never attended business school and relied on his analysts more than others.
Mr Horvath “manipulated the information so Mr Steinberg wouldn’t know it was from an illegal source,” Mr Berke said.
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