Tips flowed to Steven Cohen's 'right-hand man,' witness says

Reuters

By Nate Raymond

NEW YORK, Nov 21 (Reuters) - A former analyst testifiedThursday how secret information traveled among members of whatprosecutors have called a "corrupt circle," before making itsway to SAC Capital Advisors portfolio manager MichaelSteinberg, who is on trial on insider trading charges.

Steinberg is the first employee of Steven A. Cohen's SACCapital Advisors to face trial in a decade-long governmentinvestigation of insider trading at the hedge fund.

Jesse Tortora, a former analyst at another Wall Street hedgefund, told jurors how he had swapped confidential informationwith other analysts, including Jon Horvath at SAC.

"He in turn passed information or communicated thatinformation to Mike Steinberg," Tortora said.

Steinberg, 41, faces five counts of securities fraud andconspiracy to commit securities fraud on charges he traded in2008 and 2009 in Dell Inc and Nvidia Corp based oninside information.

Prosecutors say the information came from Horvath, ananalyst in the SAC division Steinberg oversaw, Sigma CapitalManagement.

Tortora, a former analyst at hedge fund Diamondback CapitalManagement, is the first of four cooperating witnesses thegovernment plans to call in the case against Steinberg. All fourhave pleaded guilty to charges related to insider trading.

'CORRUPT CIRCLE'

Addressing the three men and six women of the jury onThursday, Tortora said that he began receiving confidentialinformation from company insiders at Intel Corp, where he hadpreviously worked, while working at the equity research unit atPrudential Financial.

At Prudential, Tortora said he worked with other analysts,including Spyridon Adondakis and Sandeep Goyal. Adondakis andGoyal left Prudential to become part of what prosecutors onWednesday called a "corrupt circle" of analysts who swappedinsider information.

Goyal, who later joined Neuberger Berman, and Adondakis, whojoined Level Global Investors, have pleaded guilty and are alsocooperating with investigators.

Tortora, who joined Diamondback in September 2007, said thepurpose was to generate information for their portfolio managerbosses in an effort to "make more money."

"It allowed us to be more effective, more efficient and moreprofitable than working alone," Tortora said.

Another member of the group was Horvath, with whom Tortorasaid he had worked when SAC was a client of Prudential.

Tortora testified that Horvath said he passed information toSteinberg, who then traded on it. Horvath also said that Steinberg had "status" at SAC, Tortora testified.

"His words were that Mike was founder Steve Cohen'sright-hand man," Tortora said.

Tortora, 36, has appeared once before in an insider tradingtrial. He testified in the 2012 trial of Todd Newman, hisex-boss and a former portfolio manager at Diamondback, andAnthony Chiasson, a co-founder of Level Global Investors. Theywere found guilty and are appealing.

HORVATH'S PAY

Tortora's testimony followed soon after SAC Capital's chieffinancial officer gave jurors a look at the workings of thehedge fund, which is based in Stamford, Connecticut, and whichagreed this month to pay $1.2 billion to resolve a criminalinsider trading case.

CFO Daniel Berkowitz said that from 2007 to 2009, SAC hadanywhere from $10 billion to $17 billion under management, mostof the money belonging to employees.

Outside investors were charged a 3 percent management feeand a 10 percent to 50 percent success fee, Berkowitz said, arate that is higher than industry standards.

The testimony and evidence also appeared to show howHorvath's compensation increased in 2008 despite rough marketconditions. In the same year, a key trade in Dell took placethat prosecutors say was based on inside information, nettingSigma $1 million.

Documents presented at the trial showed that in 2008,Steinberg's team's profits were $13.6 million, down from $27.2million a year earlier. Steinberg's compensation, which was largely tied to the profits, fell as well, from $5.15 million to$1.75 million.

Yet, despite the decline, Horvath's pay increased from$401,084 in 2007 to $882,277 in 2008, documents showed. Hisbonuses were determined by Steinberg, said Berkowitz, who notedthat the year was "volatile."

In 2009, Steinberg's group rebounded with profits of morethan $18 million, the documents showed. Steinberg took home morethan $2.27 million. That included $26,000 termed a "Cohen TagBonus" for referring ideas to Cohen, Berkowitz said.

The case is U.S. v. Steinberg, U.S. District Court, SouthernDistrict of New York, No. 12-cr-00121.

View Comments