NEW YORK (Reuters) - In the coming trial of a SAC Capital Advisors hedge fund portfolio manager, Michael Steinberg, prosecutors are likely to present emails purporting to 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 some emails that prosecutors have not included in court filings that could be helpful to Steinberg’s defense that he did not engage in 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 November 18, could affect negotiations between lawyers for SAC Capital and federal prosecutors over resolving an indictment against SAC Capital itself. In the indictment unsealed in July, Steinberg is listed as one of seven people either charged or convicted of insider trading while working for Cohen’s 21-year-old hedge fund.
The two people familiar with the email said that in the Steinberg case, the previously undisclosed email could counter those prosecutors already have made public.
In the correspondence made public in Manhattan federal court, Jon Horvath, a former SAC Capital colleague, told Steinberg and another SAC trader that someone at Dell had told him the tech company’s earnings would come in lower than expected for the third quarter of 2008.
But the undisclosed email shows that Steinberg responded to Horvath’s tip by saying he did not believe Horvath, say people familiar with the emails. That could give Steinberg’s lawyers the opportunity to claim Steinberg did not take Horvath seriously and therefore was not motivated to make his Dell trades on Horvath’s tip, according to the sources.
If so, the undisclosed email could bolster Steinberg’s defense that the trades he subsequently made for SAC Capital in shares of the computer company were not done using inside information he obtained unlawfully.
But the sources also said Steinberg’s defense team will need more than a single email, in a case where hundreds of emails are under review, to overcome what is expected to be powerful testimony by Horvath, an important prosecution witness who pleaded guilty to insider trading charges in September 2012.
Horvath used to work for Steinberg at SAC Capital’s Sigma division.
Steinberg’s lawyer, Barry Berke, did not return phone calls seeking comment. A spokesman for Manhattan U.S. Attorney Preet Bharara declined to comment.
SAC Capital spokesman Jonathan Gasthalter declined to comment. Steinberg, who started at SAC Capital in 1997, is still employed at SAC but he is on leave.
In the government’s case against SAC Capital, prosecutors and lawyers for the hedge fund are in preliminary negotiations that could lead to the hedge fund paying up to $2 billion in fines and admitting some liability, according another source familiar with the investigation. Prosecutors have indicated the cost to SAC Capital of settling the case could rise if Steinberg is convicted.
Prosecutors have charged that Cohen’s firm had fostered a culture where employees flouted the law and were encouraged to tap their personal networks of contacts for inside information about publicly traded companies.
Prosecutors have not charged SAC founder Cohen with any wrongdoing but securities regulators filed a civil failure-to-supervise action against the billionaire trader.
In March, prosecutors unsealed a five-count indictment against Steinberg, charging him with using inside information to trade shares of Dell and chipmaker Nvidia Corp. Prosecutors contend Steinberg used the inside information to generate 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 in trading Dell shares, prosecutors introduced a series of emails between Horvath, Steinberg and Gabriel Plotkin, another SAC Capital trader. In those emails, Horvath warned his fellow traders not to share the information with anyone.
Steinberg is quoted in one of the emails made public by prosecutors, responding: “Yes normally we would never divulge data like this, so please be discreet.”
Plotkin has not been charged.
Editing by Grant McCool and Tim Dobbyn