NEW YORK (Reuters) – U.S. prosecutors are nearing a decision on whether to pursue criminal charges against SAC Capital Advisors portfolio manager Michael Steinberg related to an insider trading investigation involving shares of Dell Inc, according to two people familiar with the matter.
Steinberg, 40, a technology portfolio manager with SAC Capital’s Sigma Capital division, previously had been named by prosecutors as an unindicted co-conspirator in a criminal prosecution involving two other recently convicted hedge fund traders, Todd Newman and Anthony Chiasson, who had also traded Dell shares.
It is not known what possible charges prosecutors are contemplating bringing against Steinberg. During the Newman and Chiasson trial late last year, prosecutors had introduced emails that showed Steinberg and his colleagues discussing Dell’s earnings performance before they were publicly released.
Steinberg’s lawyer, Barry Berke, said his client “did absolutely nothing wrong.” An SAC Capital spokesman declined to comment. Dell has also declined to comment on the case.
The sources said federal authorities continue to interview witnesses and expect a decision on whether to file criminal charges against Steinberg within several weeks, though they noted the situation and timing are fluid.
If Steinberg is charged by federal authorities, he will be one of the most senior people at Steven A. Cohen’s SAC Capital to become embroiled in the government’s investigation of insider trading in the $2 trillion hedge fund industry.
Cohen’s $14 billion hedge fund has been under investigation by U.S. authorities for at least six years. Cohen himself has not been charged, nor has he been accused of any wrongdoing.
One of the hedge fund industry’s most successful traders, Cohen has been working to calm the nerves of his outside investors, who have until February 14 to decide whether to redeem some of their money from SAC Capital.
Even though SAC Capital’s flagship fund grew 13 percent last year, more than twice the gain for the average hedge fund, the firm is bracing for redemption requests of as much as $1 billion, according to people familiar with the hedge fund. Outside investors account for roughly $6 billion of SAC Capital’s money.
These sources have said the two biggest redemptions so far were from Citigroup’s private bank, which is withdrawing $187 million, and Titan Advisors, which is redeeming up to $150 million.
Citigroup said last month that it would consider reinvesting in SAC’s hedge funds if the firm’s “legal and regulatory matters are resolved favorably. Titan has not commented.
Weighing in the balance is a decision by Blackstone Group, which has funds that have invested $550 million in SAC Capital. Blackstone has not commented.
SAC Capital put Steinberg on leave in October 2012, after his name appeared in press reports about the insider trading probe, though he remains on the firm’s payroll.
In considering whether to charge Steinberg, the sources said federal authorities are weighing how much credence to give information provided by former Sigma portfolio manager Jon Horvath, who pleaded guilty in September and admitted to receiving inside information about Dell that was shared with a number of hedge fund managers including Chiasson and Newman. The group made about $62 million in illegal profits from the trade, according to court documents.
Chiasson and Newman were both convicted of insider trading by a jury on December 17. Horvath, who pled guilty, is cooperating with the government’s investigation, but it is not known what details, if any, he has provided about Steinberg’s possible role. Horvath’s lawyer did not respond to requests for comment.
During the Chiasson and Newman trial, prosecutors introduced a series of emails between Horvath, Steinberg and Gabriel Plotkin, another top Sigma trader and close associate of Cohen’s. In one of the emails, Horvath said “someone at the company” had told him Dell’s per-share earnings were going to come in lower than expected. In another email, Horvath warned Plotkin, “please keep to yourself as obviously not well known.”
Steinberg responded: “Yes normally we would never divulge data like this, so please be discreet.”
Plotkin has not been charged. He has not returned requests for comment.
U.S. authorities have formally charged or implicated nine people with using inside information while working at Cohen’s 900-employee fund. A handful of former SAC Capital employees, including Chiasson, have been convicted of engaging in insider trading at firms they joined after leaving SAC Capital.
In November, federal prosecutors charged former SAC Capital manager Mathew Martoma with participating in one of the most lucrative insider trading schemes ever that allegedly helped the firm avoid losses and reap profits of $276 million.
“Mathew denies the charges and we are working to get ourselves ready for the trial at the appropriate time,” said Martoma’s lawyer Charles Stillman.
The charges involving Martoma are the first to refer directly to Cohen, though he appears in them as ‘Hedge Fund Owner’ rather than by name. A few days after Martoma’s arrest, SAC disclosed that U.S. securities regulators were considering filing civil charges against the firm for failure to adequately oversee its employees’ activity.
SAC Capital charges some of the highest fees in the industry and has delivered average annualized returns of about 25 percent to investors since the firm was founded in 1992.
Steinberg, who joined SAC Capital in 1997, used to be part of a group of top SAC traders who hold Sunday phone calls with Cohen and share their best trading ideas.
Steinberg’s tenure at the hedge fund has been lucrative, allowing him to purchase a penthouse on Park Avenue for $8 million in 2009, according to real estate site BlockShopper.com, and to vacation regularly in the Hamptons.
(Reporting by Emily Flitter and Katya Wachtel, editing by Matthew Goldstein, Tiffany Wu and Leslie Gevirtz)
(This story corrects date Steinberg was put on leave in 13th paragraph to October 2012, not October 2011)