Great Neck native Michael Steinberg, an employee of embattled hedge fund SAC Capital Advisors, was sentenced in Federal District Court in Manhattan on Friday to 42 months in prison on charges of insider trading.
U.S. District Judge Richard J. Sullivan also ordered Steinberg to forfeit $365,142.30 to the federal government, pay a $2 million fine for using confidential stock information to make a profit for his company and to serve three years of supervised release.
“Michael Steinberg traded on information from company insiders at Dell and NVIDIA to reap nearly $2 million in illegal profits. Today he has learned the steep cost of those transactions,” said Preet Bharara, the United States Attorney in Manhattan in a statement
Steinberg was convicted on four counts of securities fraud and one count of conspiracy in Federal District Court in Manhattan on Dec. 18, following a month-long trial and two days of deliberation from a nine-person jury.
Steinberg appeared to faint shortly before the verdict was announced, according to the New York Times.
Steinberg, who graduated from Great Neck North High School, worked as a portfolio manager for the multi-billion dollar company, founded by fellow Great Neck North alumnus Steven Cohen.
During his trial, federal prosecutors were able to prove that Steinberg received confidential information about Dell and NVIDIA stocks, which he used to generate $1.8 million in profits.
Steinberg received the information from multiple analysts including Jon Horvath, who has pleaded guilty to insider trading and testified against Steinberg.
Horvath’s said while on the witness stand that Steinberg forced him to come up with new ways to obtain stock information.
“I thought he wanted me to cultivate sources of non-public information,” Horvath said, according to a December New York Times report. The Times reported that Horvath said he was testifying in order to avoid jail time.
Horvath warned Steinberg in August 2008 that Dell would report lower than expected profit margins, according to federal prosecutors.
Prosecutors said Horvath wrote to Steinberg in an e-mail that the information he received needed to be kept a secret.
“Pls [sic] keep the DELL stuff especially on the down low,” Horvath wrote.
Steinberg, in 2009, obtained confidential information about NVIDIA stocks before it announced lower than expected profit margins.
Steinberg received the information from trade analyst Danny Kuo, who had received the information from a friend who knew someone within the company, prosecutors said.
According to published reports, Steinberg’s name surfaced as a person of interest three years ago. He was arrested outside of his Manhattan apartment last year after returning from vacation with his family.
In their decade-long investigation of SAC, federal prosecutors have charged eight of Cohen’s employees with insider trading.
Cohen, 57, has not been accused of any criminal wrongdoing, but has been named in a Securities and Exchange Commissions lawsuit accusing him of not properly supervising his employees.
The SEC alleges that Cohen failed to prevent employees that he directly supervised from making illegal trades, despite having prior knowledge of their intentions to do so. Cohen allegedly made more than $200 million in profits through insider trading.
The SEC is seeking to bar Cohen from ever overseeing outside money again.
Steinberg’s conviction is seen as their most significant because Steinberg and Cohen, in addition to being business partners, are personal acquaintances. Steinberg landed a job at SAC in his mid-20s and quickly rose through the ranks of SAC, becoming one of Cohen’s most trusted workers due to his high success rate.
The two Great Neck North alumni share a passion for art and the Times reported that Cohen attended Steinberg’s wedding.
The two are also major philanthropists.
Steinberg helped to found Natan, which, according to its website, “supports entrepreneurial organizations that demonstrate an innovative approach to addressing the challenges facing Jews around the world,” by giving out grants.
The Steven and Alexandra Cohen Children’s Medical Center of New York in New Hyde Park, which is part of the North Shore-LIJ Health System, and a center at Mt. Sinai Hospital in New York City are among named after Cohen.
Cohen’s Connecticut-based hedge fund pleaded guilty in November to charges of insider trading.
A federal judge last month accepted a plea deal from Cohen’s company, which has now been renamed Point 72 Asset Management, that would force it to shut its doors to outside investors and pay a $1.2 billion penalty – $900 million in fines and $300 million in forfeited profits.
But Cohen did not have to pay the full amount of penalty for 90 days under the terms of the plea deal, according to an April New York Times report.
The extension has allowed Cohen’s company to continue to trade in the stock market until the deadline ends in mid-July, according to the Times.
Even after paying the $1.2 billion penalty, Cohen is expected to have a personal fortune of about $9 billion, which will be managed by Point72.
