NEW YORK (Reuters) - A former analyst testified Thursday how secret information traveled among members of what prosecutors have called a “corrupt circle,” before making its way to SAC Capital Advisors portfolio manager Michael Steinberg, who is on trial on insider trading charges.
Steinberg is the first employee of Steven A. Cohen’s SAC Capital Advisors to face trial in a decade-long government investigation of insider trading at the hedge fund.
Jesse Tortora, a former analyst at another Wall Street hedge fund, told jurors how he had swapped confidential information with other analysts, including Jon Horvath at SAC.
“He in turn passed information or communicated that information to Mike Steinberg,” Tortora said.
Steinberg, 41, faces five counts of securities fraud and conspiracy to commit securities fraud on charges he traded in 2008 and 2009 in Dell Inc and Nvidia Corp based on inside information.
Prosecutors say the information came from Horvath, an analyst in the SAC division Steinberg oversaw, Sigma Capital Management.
Tortora, a former analyst at hedge fund Diamondback Capital Management, is the first of four cooperating witnesses the government plans to call in the case against Steinberg. All four have pleaded guilty to charges related to insider trading.
Addressing the three men and six women of the jury on Thursday, Tortora said that he began receiving confidential information from company insiders at Intel Corp, where he had previously worked, while working at the equity research unit at Prudential Financial.
At Prudential, Tortora said he worked with other analysts, including Spyridon Adondakis and Sandeep Goyal. Adondakis and Goyal left Prudential to become part of what prosecutors on Wednesday called a “corrupt circle” of analysts who swapped insider information.
Goyal, who later joined Neuberger Berman, and Adondakis, who joined Level Global Investors, have pleaded guilty and are also cooperating with investigators.
Tortora, who joined Diamondback in September 2007, said the purpose was to generate information for their portfolio manager bosses in an effort to “make more money.”
“It allowed us to be more effective, more efficient and more profitable than working alone,” Tortora said.
Another member of the group was Horvath, with whom Tortora said he had worked when SAC was a client of Prudential.
Tortora testified that Horvath said he passed information to Steinberg, 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’s right-hand man,” Tortora said.
Tortora, 36, has appeared once before in an insider trading trial. He testified in the 2012 trial of Todd Newman, his ex-boss and a former portfolio manager at Diamondback, and Anthony Chiasson, a co-founder of Level Global Investors. They were found guilty and are appealing.
Tortora’s testimony followed soon after SAC Capital’s chief financial officer gave jurors a look at the workings of the hedge fund, which is based in Stamford, Connecticut, and which agreed this month to pay $1.2 billion to resolve a criminal insider trading case.
CFO Daniel Berkowitz said that from 2007 to 2009, SAC had anywhere from $10 billion to $17 billion under management, most of the money belonging to employees.
Outside investors were charged a 3 percent management fee and a 10 percent to 50 percent success fee, Berkowitz said, a rate that is higher than industry standards.
The testimony and evidence also appeared to show how Horvath’s compensation increased in 2008 despite rough market conditions. In the same year, a key trade in Dell took place that prosecutors say was based on inside information, netting Sigma $1 million.
Documents presented at the trial showed that in 2008, Steinberg’s team’s profits were $13.6 million, down from $27.2 million 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. His bonuses were determined by Steinberg, said Berkowitz, who noted that the year was “volatile.”
In 2009, Steinberg’s group rebounded with profits of more than $18 million, the documents showed. Steinberg took home more than $2.27 million. That included $26,000 termed a “Cohen Tag Bonus” for referring ideas to Cohen, Berkowitz said.
The case is U.S. v. Steinberg, U.S. District Court, Southern District of New York, No. 12-cr-00121.
Editing by Phil Berlowitz and Dan Grebler