Another federal investigation into insider trading at SAC Capital Advisors and another guilty plea is captured by federal prosecutors. Yet, nowhere is billionaire investor Steven A. Cohen to be found - because the feds have nothing on him - and that's with about 5 years of steady probing and prodding.
Friday's guilty plea was provided by Jon Horvath, a former tech analyst at SAC, just one month before his criminal trial was scheduled to begin. Horvath is the fourth former SAC employee to admit to illegal trading while employed at the fund, which manages $14 billion. SAC has been a focus of federal authorities since the government began its crackdown on insider trading at hedge funds five years ago.
With the plea, there now is added pressure on Mr. Horvath's co-defendants – Anthony Chiasson, a co-founder of Level Global Investors, and Todd Newman, a portfolio manager at Diamondback Capital Management.
Federal Investigators' Findings and Allegations. Federal prosecutors say these 3 were part of a 7-person conspiracy – a "circle of friends" – that earned about $62 million in illegal gains trading on secret tips from executives at publicly traded technology companies. Jon Horvath, 42, is the 5th person to plead guilty and cooperate with the government. Several of the cooperators are expected to testify against Mr. Chiasson and Mr. Newman at their trial, which is set for 10/29/12.
Mr. Horvath's guilty plea also puts additional focus on another SAC trader, Michael Steinberg, who supervised Mr. Horvath at SAC, yet emerged as an unindicted co-conspirator in the case last week.
Horvath's Confessions. During Friday's court appearance, Horvath said that he obtained confidential information about the technology companies Dell and Nvidia and then "provided the information to the portfolio manager I worked for and we executed the trades based on that information." That portfolio manager is Mr. Steinberg, according to 2 people with direct knowledge of the matter who requested anonymity because they were not authorized to discuss it publicly.
Mr. Steinberg, 40, is one of Stephen Cohen's long-time lieutenants, having worked at SAC since 1997. Attorney Barry Berke is representing Mr. Steinberg.
"Until today, Mr. Horvath maintained he had not violated the law and we gave him the benefit of the presumption of innocence. We are disappointed and angered to learn Mr. Horvath admittedly violated the law and SAC's policies forbidding insider trading. We expect our employees to have integrity, play by the rules and follow the letter and spirit of the law." -- SAC Spokesperson.
Attorney Steven Peikin is representing Mr. Horvath, while John Nathanson is representing Mr. Newman, and Gregory Morvillo, a lawyer for Mr. Chiasson, also declined to comment.
Mr. Cohen and SAC have not been charged with wrongdoing. The Stamford, CT-based fund, with about 1,000 employees, has a 20-year track record that is one of the best investment records in the hedge fund industry. The fund is up about 8% year-to-date.
SAC has an unconventional structure. Unlike other hedge fund managers that make all the investment decisions, Mr. Cohen manages less than 10% of the fund's money, distributing the rest to about 140 small teams. It is a high-pressure culture where Mr. Cohen will reward teams that perform well with increased allocations, while underperformers can get cut back or lose their jobs. The more money a team manages, the greater its potential earnings.
Mr. Cohen, 56, has had enormous success as a stock picker, and his net worth today stands at about $8.8 billion, according to Forbes magazine.
Mr. Horvath, who now resides in San Francisco, faces a maximum sentence of 45 years in prison, though he is expected to receive a far more lenient sentence. He is a citizen of Sweden, and could face deportation after serving time.
For further details, go to: [Dealbook, 9/28/12].
