Email, undisclosed in SAC trader's case, could help defense -sources

Reuters

By Matthew Goldstein and Emily Flitter

NEW YORK, Oct 4 (Reuters) - In the coming trial of a SACCapital Advisors hedge fund portfolio manager, MichaelSteinberg, prosecutors are likely to present emails purportingto show he was being tipped about inside information on Dell Inc before trading on the stock.

But two people familiar with the matter said there are someemails that prosecutors have not included in court filings thatcould be helpful to Steinberg's defense that he did not engagein insider trading in August 2008 at SAC, founded by Steven A.Cohen, one of Wall Street's most successful hedge fund managers.

The outcome of Steinberg's criminal trial in New York,scheduled to start on Nov. 18, could affect negotiations betweenlawyers for SAC Capital and federal prosecutors over resolvingan indictment against SAC Capital itself. In the indictmentunsealed in July, Steinberg is listed as one of seven peopleeither charged or convicted of insider trading while working forCohen's 21-year-old hedge fund.

The two people familiar with the email said that in theSteinberg case, the previously undisclosed email could counterthose prosecutors already have made public.

In the correspondence made public in Manhattan federalcourt, Jon Horvath, a former SAC Capital colleague, toldSteinberg and another SAC trader that someone at Dell had toldhim the tech company's earnings would come in lower thanexpected for the third quarter of 2008.

But the undisclosed email shows that Steinberg responded toHorvath's tip by saying he did not believe Horvath, say peoplefamiliar with the emails. That could give Steinberg's lawyersthe opportunity to claim Steinberg did not take Horvathseriously and therefore was not motivated to make his Delltrades on Horvath's tip, according to the sources.

If so, the undisclosed email could bolster Steinberg'sdefense that the trades he subsequently made for SAC Capital inshares of the computer company were not done using insideinformation he obtained unlawfully.

But the sources also said Steinberg's defense team will needmore than a single email, in a case where hundreds of emails areunder review, to overcome what is expected to be powerfultestimony by Horvath, an important prosecution witness whopleaded guilty to insider trading charges in September 2012.

Horvath used to work for Steinberg at SAC Capital's Sigmadivision.

Steinberg's lawyer, Barry Berke, did not return phone callsseeking comment. A spokesman for Manhattan U.S. Attorney PreetBharara declined to comment.

SAC Capital spokesman Jonathan Gasthalter declined tocomment. Steinberg, who started at SAC Capital in 1997, is stillemployed at SAC but he is on leave.

In the government's case against SAC Capital, prosecutorsand lawyers for the hedge fund are in preliminary negotiationsthat could lead to the hedge fund paying up to $2 billion infines and admitting some liability, according another sourcefamiliar with the investigation. Prosecutors have indicated thecost to SAC Capital of settling the case could rise if Steinbergis convicted.

Prosecutors have charged that Cohen's firm had fostered aculture where employees flouted the law and were encouraged totap their personal networks of contacts for inside informationabout publicly traded companies.

Prosecutors have not charged SAC founder Cohen with anywrongdoing but securities regulators filed a civilfailure-to-supervise action against the billionaire trader.

In March, prosecutors unsealed a five-count indictmentagainst Steinberg, charging him with using inside information totrade shares of Dell and chipmaker Nvidia Corp.Prosecutors contend Steinberg used the inside information togenerate about $1.4 million in illegal profits for Cohen's fund,which had $14 billion in assets as of this summer.

In charging Steinberg with using inside information intrading Dell shares, prosecutors introduced a series of emailsbetween Horvath, Steinberg and Gabriel Plotkin, another SACCapital trader. In those emails, Horvath warned his fellowtraders not to share the information with anyone.

Steinberg is quoted in one of the emails made public byprosecutors, responding: "Yes normally we would never divulgedata like this, so please be discreet."

Plotkin has not been charged.

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