In SAC case, one chain of insider tips hit dead end before Cohen

Fri Nov 8, 2013 2:31pm EST
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By Emily Flitter and Nate Raymond

NEW YORK (Reuters) - As lawyers for SAC Capital Advisors made final preparations on Friday to enter an expected guilty plea in the insider trading case against the hedge fund, a late-night filing in a related criminal case offered a close look at how one trail of inside information went cold just before it reached SAC founder Steven A. Cohen.

The filing, made in the insider trading case against SAC executive Michael Steinberg, offers one clue about why prosecutors have not filed criminal charges against Cohen personally despite making a case that the firm itself had violated the law. It provides details related to a key aspect necessary for proving any insider trading case: Did the person authorizing the trades knowingly base the trading decision on insider information?

SAC is expected later on Friday to plead guilty to securities fraud and wire fraud and pay $1.2 billion in fines and forfeiture. Although authorities have not charged Cohen with wrongdoing, prosecutors said they will continue to investigate potential wrongful trading by individuals at the one-time $15 billion hedge fund.

Prosecutors in the Steinberg case asked that the defense team for Steinberg, who was charged in March over alleged insider trading in computer company Dell Inc and chipmaker Nvidia Corp, be barred from introducing evidence of trading in those stocks by another top SAC lieutenant, Gabriel Plotkin, to avoid creating confusion for the jury.

In the filing, prosecutors said a similar rationale applies to their decision to not introduce evidence that Cohen also made trades in shares of Dell in the summer of 2008 after receiving the same email authorities allege prompted Steinberg to make trades using inside information.

Authorities note that neither Cohen nor Plotkin has been charged with wrongdoing in trading Dell shares because they were too removed from the alleged source of the inside information.

Steinberg's trial is slated to begin on November 18.

The prosecution's filing in the Steinberg case shows that the emails containing inside information about Dell's quarterly earnings in summer 2008 allegedly were seen by a number of people within SAC beyond Steinberg.   Continued...

Hedge fund manager Steven A. Cohen, founder and chairman of SAC Capital Advisors, responds to a question during a one-on-one interview session at the SkyBridge Alternatives (SALT) Conference in Las Vegas, Nevada May 11, 2011. REUTERS/Steve Marcus