Federal authorities have arrested a former Great Neck resident on insider trading charges in the latest legal action against embattled hedge fund SAC Capital.
Michael Steinberg, 40, was arrested by FBI agents outside his Manhattan apartment building early Friday morning for allegedly using inside information to trade on technology companies Dell and NVIDIA, earning what prosecutors say was $1.4 million for the hedge fund he managed.
“As alleged, Michael Steinberg was another Wall Street insider who fed off a corrupt grapevine of proprietary and confidential information cultivated by other professionals who made their own rules to make money. With lightning speed in at least one case, Mr. Steinberg seized on the opportunity to cash in and tried to keep his crime quiet, as charged in the Indictment,” said Manhattan U.S. Attorney Preet Bharara in a statement. “As alleged, where once Mr. Steinberg answered only to his own rules, now he will have to answer to the rule of law, like so many others before him.”
The arrest is the latest in a series of criminal allegations against what Bharara’s office and the FBI describe as a network of investment analysts who shared insider information.
Steinberg, who graduated from Great Neck North High School, was a portfolio manager for SAC Capital, the multi-billion dollar hedge fund founded by fellow Great Neck native and Great Neck North alumnus Steven Cohen.
The arrest came less than two weeks after SAC Capital agreed to pay more than $600 million in settlements to the Securities and Exchange Commission over insider trading allegations. That settlement is reportedly being scrutinized by the courts, and a federal judge has expressed skepticism over a clause in the settlement that allows the fund to pay the settlement without admitting fault.
“Michael Steinberg did absolutely nothing wrong,” Barry H. Berke, a lawyer for Steinberg, said in a statement to the New York Times. “Caught in the cross-fire of aggressive investigations of others, there is no basis for even the slightest blemish on his spotless reputation.”
Federal authorities have been less effusive about Steinberg’s character.
FBI Assistant Director-in-Charge George Venizelos said Steinberg was “at the center of an elite criminal club” in a statement.
Cohen, 56, started SAC Capital in 1992 and is worth $9.2 billion, according to Forbes. He has not been charged in connection with the alleged insider trading scheme.
At the heart of the indictment are allegations that Steinberg immediately began short-selling shares of Dell after hearing an insider tip from an employee, John Horvath, an analyst who prosecutors say obtained early information about Dell’s quarterly earnings from a network of investment analysts who have already pled guilty to their own charges.
The indictment alleges that Steinberg shorted Dell within a minute of receiving inside information about Dell’s weak earnings numbers from Horvath on August 18, 2008.
Prosecutors also released the text of e-mails allegedly sent between Horvath and Steinberg discussing the information obtained from former analyst Jesse Tortora, who pled guilty to insider trading and has testified as a government witness in subsequent trading cases.
“Pls keep the DELL stuff especially on the down low . . . just mentioning that because JT [Jesse Tortora] asked me specifically to be extra sensitive with the info,” wrote Horvath to Steinberg one minute after Steinberg’s portfolio began shorting more than 167,000 shares of Dell, according to prosecutors.
Bharara’s office alleges that Steinberg’s short selling of Dell made his fund about $1 million, and that 2009 transactions in NVIDIA stock earned another $400,000 based on inside information.
