US authorities have arrested Michael Steinberg, a portfolio manager at SAC Capital and the most senior executive to date to be questioned in the investigation into the hedge fund giant.
Steinberg, 40, was led out of his Park Avenue apartment early Friday morning in handcuffs after returning from a family vacation in Florida. He has been charged with conspiracy and securities fraud.
Steinberg pleaded not guilty in federal district court in Manhattan on Friday and was freed on $3m bail.
The arrest comes amid a widening investigation into SAC, the Connecticut-based hedge fund founded by multi-billionaire investor Steven Cohen. At least nine current or former SAC employees have now been tied to allegations of insider trading. Four have pleaded guilty to federal charges.
FBI assistant director-in-charge George Venizelos said: “Steinberg was at the center of an elite criminal club, where cheating and corruption were rewarded. Research was nothing more than well-timed tips from an extensive network of well-sourced analysts.”
Separately, the SEC filed a civil lawsuit against Steinberg in Manhattan
federal court on Friday.
Barry Berke, Steinberg’s lawyer, said his client had been “caught in the crossfire of aggressive investigations of others”.
“Michael Steinberg did absolutely nothing wrong,” he said. “His trading decisions were based on detailed analysis” and information “he understood had been properly obtained through the types of channels that institutional investors rely upon on a daily basis.”
Steinberg, who has worked for Cohen since 1997, most recently on technology stocks, has been on leave since September. The company has not commented on the reasons for the decision. Shortly before Steinberg was granted leave, Jon Horvath, an analyst who worked under him, pleaded guilty to obtaining insider information about computer firm Dell and other stocks.
In his guilty plea, Horvath said that he gave confidential information to Steinberg and that the two traded based on secret financial data. Hovarth has continued to co-operate with the authorities since his plea deal.
In a 2008 email introduced as evidence in the trial of two other traders last year, Horvath told Steinberg: “Pls keep the Dell stuff especially on the down low.” He said an analyst friend had asked him “to be extra sensitive with the info”.
The arrest comes as a judge has questioned a legal settlement SAC reached with the US authorities over two other insider dealing cases.
In May SAC agreed to pay regulators $616m to resolve two insider trading cases. On Thursday, US district judge Victor Marrero refused to approve the larger of the two settlements, a $602m deal, after questioning a provision that allows SAC to avoid admitting that it did anything wrong.
The move follows a similar rejection of a Citigroup settlement in 2011 by US district judge Jed Rakoff. That case in now being appealed. Marrero ended Thursday’s hearing without saying when he will rule on the settlement.
In the meantime, Cohen has been making headlines for other reasons. The hedge fund king added Picasso’s Le Rêve to his $1bn art collection for $155m. Last week he paid $60m for an oceanfront home in the Hamptons.