Thursday, December 19, 2013

Government Wins First Jury Conviction in SAC Prosecution

A jury in federal district court in New York yesterday returned a guilty verdict against Michael Steinberg, a senior official at the giant hedge fund, SAC Capital Advisors, LP.  A grand jury had indicted Steinberg on charges of insider trading.  Previously, six other SAC employees and the firm itself have pleaded guilty to criminal charges stemming from insider trading activities.  The firm's founder, Steven A. Cohen, has not been charged with a crime.  Nevertheless, he is a defendant in a civil action by the Securities and Exchange Commission.  The SEC has alleged failure to supervise by Cohen based on the insider trading by his underlings.  The criminal investigation is apparently continuing.  Cohen could still be charged with a crime if persons charged and convicted decide to cooperate with the government investigation in an attempt to lessen their sentences.
 
The indictment against Steinberg charged that he used inside information about Dell, Inc., and Nvidia Corp. to make lucrative trades at the expense of others trading in the market.  Specifically, the government proved at trial that Steinberg received inside nonpublic information that Dell would not meet Wall Street's projections.  Based on the information, Steinberg executed trades that produced profits of at least $1 million.
 
The jury convicted Steinberg of all five counts of the indictment.  Those counts included conspiracy to commit securities fraud, two counts of securities fraud, and two counts of wire fraud.  Each charge carries a maximum penalty of 20 years in prison.  In reality the sentences are very likely to run concurrently.  Moreover, under the federal sentencing guidelines Steinberg's recommended sentence will be significantly less than 20 years and probably somewhat less than ten.  Nevertheless, in the federal system sentencing decisions are ultimately left to the presiding judge to determine a just sentence considering the specifics of the crime and the defendant.  Federal law provides the factors that the sentencing judge must consider in determining a just sentence.  Those factors are found in 18 U.S.C. Section 3553. 
 
For more on the conviction and the case in general, please see Bloomberg, "SAC Money Manager Guilty as Insider Focus Turns to Martoma," http://www.bloomberg.com/news/2013-12-18/sac-fund-manager-steinberg-guilty-in-insider-trading-case.html, and The Wall Street Journal, "Jury Votes to Convict SAC Manager," http://online.wsj.com/news/articles/SB10001424052702304773104579266554036539982.

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