Senior SAC Trader Arrested, Given Perp Walk

Tyler Durden's picture

Hopefully the $155 million purchase of Picasso's "Le Reve" by Steve Cohen coupled with his splurge on a $60 million East Hamptons pad comes with a 30 full day money back guarantee, because very soon he may have more practical and immediate uses for the money. If the SAC head was hoping that the recent $602 million settlement his firm had reached with the SEC was enough to put all his troubles behind him, he may want to think twice.

First, yesterday, New York District Judge Victor Marrero pulled a "Judge Rakoff", when he balked at the SEC’s use of the “neither admit nor deny” provision (the same argument used by Rakoff when he rejected an SEC settlement with Citigroup in 2011). Marrero also asked what would happen if Martoma, who has pleaded not guilty to related criminal charges, is convicted. “How would it look if in the settlement before it, the parties were allowed to say ‘We did nothing wrong?’” Marrero asked. “The ground is shaking, let’s admit that,” said Marrero. “This court is in the same position that Judge Rakoff was some months ago." But in the end we are sure that Marrero, just like Rakoff, will fold to pressure, and money.

However, where things got interesting is that moments ago the Feds arrested long-time SAC suspect and PM Michael Steinberg, giving him a perp walk out of his Park Avenue apartment. This was the highest profile arrest so of any SAC employee and means that while the SEC may be trying to close the book on Cohen, the Feds are only now getting started.

From the WSJ:

Michael Steinberg, 40 years old, was led out of his building on New York's Park Avenue in handcuffs around 6 a.m. Mr. Steinberg has worked at Stamford, Conn.-based SAC since 1997 and at its Sigma Capital Management unit in New York since 2003, dealing closely with SAC's billionaire founder Steven A. Cohen. Details of the charges are expected to become public later Friday.

 

"Michael Steinberg did absolutely nothing wrong," his lawyer, Barry H. Berke, said in a statement Friday. "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."

 

Mr. Berke said Mr. Steinberg had been "caught in the crossfire of aggressive investigations of others [and] there is no basis for even the slightest blemish on his spotless reputation."

 

The development underscores that the government continues to aggressively pursue SAC and its employees just two weeks after the hedge-fund firm agreed to pay a record $616 million civil penalty to settle two insider-trading lawsuits brought by the Securities and Exchange Commission. SAC didn't admit or deny wrongdoing in either settlement.

 

SAC put Mr. Steinberg on leave last September. Around that time, Jon Horvath, a former analyst working under Mr. Steinberg, pleaded guilty to obtaining inside-information about Dell Inc. and other stocks and trading on the tips with his boss. Mr. Horvath is one of the ex-employees cooperating with authorities.

 

SAC has declined to specify the reason it put Mr. Steinberg on leave.

 

Mr. Steinberg's arrest also highlights how federal authorities are attempting to reach into the highest ranks of the $15 billion hedge fund. Since late 2009, six former SAC employees have been convicted of or pleaded guilty to insider-trading charges; four are cooperating with authorities.

The purpose for the demonstrative Good Friday arrest is quite clear: to send a message to old blue eyes himself:

The government could seek to use Mr. Steinberg as a potential witness against Mr. Cohen if Mr. Steinberg ever were to cooperate, according to the people familiar with the probe and with the hedge-fund firm. During his 16 years at SAC, he built trust with Mr. Cohen as an arbiter of analysts, able to assess their sometimes contradictory views and reliably advise Mr. Cohen on investment decisions, say people close to the firm's operations.

We wish the best of luck to the Feds whose sentencing guidelines (if it ever comes to that) better have a greater adverse NPV than the untold amount of hush money waiting for Steinberg on the other side, when he comes out of minimum security prison in 5 to 7.

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Badabing's picture

You can't step on TPTBs feet.

i wonder who gets the $602mil

Zer0head's picture

And a Good Friday morning to you, Mr. Steinberg

 

SafelyGraze's picture

is there a law against the CIC *not* declaring war?

course not.

a law against a judge *not* convicting?

course not.

a law against the SEC *not* charging someone?

course not.

a law against a banker *not* taking your gambling money?

 

Ancona's picture

But we knew there would be sacrificial lambs, just not which lamb in particular.

Nothing to see here, move along now.

gmrpeabody's picture

The only plausible explanation is that Eric Holder has ordered a clean-up crew to scour the place.

Pure Evil's picture

Reminds me of Caligula and how he went after Roman Senators and the rich to fuel his desires to spend to excess.

Finally, the FEDS going after those that have real money to steal, unlike those poor Cypriot slobs in the EU.

hooligan2009's picture

won't be anybody who lost money by being on the other side of his trades, that's for sure, since there will be an ineterminate number of these...the forst other side would be, say, GS or JPM, who have already acted in God's interest and found a muppet or series of muppets (clients) to offload the trades.

seems regulators ought to be more like predators on the great herd of wildebeest or whatever; the larger the herd the more predators, the smaller the herd..the less

Buck Johnson's picture

Alot of hush money is waiting for him, you can count on that.

sunnydays's picture

So he is not one of the "too big to jail" people, like Dimon and the others are.

Urban Redneck's picture

Yes and no.  There is a special circle in hell that is reserved for the bank license holders and primary dealers of the Federal Reserve- and Cohen ain't a member.  Furthermore, when push comes to shove they have proven they were willing throw the gorilla and even the remnants of Kuhn Loeb under the bus to pursue their own ends.  However, I wouldn't hold my breath since the distance between Good Friday and the jailing of the big sac of shit, is a road trip long enough to drive any Fuhrer insane from the cries of "Are we there yet?" from emanating from those of lesser status relegated to the back of the bus.

Sudden Debt's picture

Eversince he didn't pay his contributions to the Empirial Overlord Obama coalition, he lost his elite status and can only expect repression from now on just like all the rest of the Servs!!!

buzzsaw99's picture

Again the guy who benefitted most walks off with all the dough laughing. Round up the usual suspects.

AnAnonymous's picture

This 'american' behaviour will only end when there is no longer usual suspects.

Depletion of resources. That includes the usual suspects.

'American' style.

JOYFUL's picture

Quite auspiciously, it has been determined that you yourself are a usual suspect...guilty of an 'american' style repetitive logical fallacy...

far from depleting, this list be growing, and will attract the interest of Public Security investigators who have deduced that idle grousing on the part of discontented elements within their own structure can be safely traced and rooted out now, with the new mandate handed them by Xi & Cie. Pity those VPNs don't work so good under the all seeing eye of the Great CyberWall of China!

Is there a box you can check regarding your organ donation preferences?

ceilidh_trail's picture

Speaking of behavior, when you poop on side of road, what do you use to wipe? Depletion of resources- Does cHinA not have ability to switch from building unoccupied buildings to just building some more outhouses (that might actually be used) to reduce public pooping?

Monedas's picture

They used to poop in their leafy green vegetable gardens .... and everyone was happy ?

ziggy59's picture

Cohen just bought another EHampton House..60Million
Billionaire Steve Cohen Just Bought A Gorgeous Hamptons House For $60 Million
http://www.businessinsider.com/steve-cohen-buys-60m-hamptons-house-2013-...

nmewn's picture

"First, yesterday, New York District Judge Victor Marrero pulled a "Judge Rakoff", when he balked at the SEC’s use of the “neither admit nor deny” provision (the same argument used by Rakoff when he rejected an SEC settlement with Citigroup in 2011). Marrero also asked what would happen if Martoma, who has pleaded not guilty to related criminal charges, is convicted. “How would it look if in the settlement before it, the parties were allowed to say ‘We did nothing wrong?’” Marrero asked. “The ground is shaking, let’s admit that,”

And I thought it was just me.

Zero_Sum's picture

Yeah, I keyed in on that too. Fucking-A right the ground is shaking.

MachoMan's picture

It's wild that, on the one hand, we can admit that, but, on the other hand, do nothing about it...  especially for those in a position to do something AS AN EXPRESS OBLIGATION OF THEIR JOB.  Eventually though, there will be too many spinning plates and the precedents will be too voluminous to ignore by those persons desperate to avoid making a difficult decision.  

toys for tits's picture

Does Michael Steinberg run a janitorial service on the side?

Catullus's picture

There is nothing harmful about trading on information.  If someone is handling my money, I want them to trade on information and good information at that.  "Insider trading" is just another bullshit government farse.  The rule is Kafkaesque and the only people who have ever been "harmed" by it are those who are envious of others doing their homework.  It was a rule designed by the banking elite to prevent outsiders in the financial system from outmaneuvering them.

NotApplicable's picture

Thing is, it's apparently the only law they understand.

unwashedmass's picture

 

WOW. ARE YOU REALLY THAT NAIVE? 

Catullus's picture

Insider trading?  Bernie Madoff?  Really?

How about just running a ponzi scheme?  That's called fraud.  Again, not insider trading.

LawsofPhysics's picture

Hey dipshit, if you can "do homework" and get the information, then it isn't insider trading.  If you are the CEO and know things are about to get bad, so you sell ahead of the press release, then you are trading on information that no amount of "homework" would reveal because it isn't public knowledge.  Fucking morons everywhere.

Catullus's picture

Show me a victim.  Just one.

Lying to your shareholders is called fraud.  There are rules on that.  They're not covered under trading with knowledge.

LawsofPhysics's picture

Look no further than the unemployment line dipshit.  No matter, that which is not sustainable, won't be sustained.  When fraud is the status quo, possession is the law.  Roll the mother fucking guillotines already (they will roll eventually anyway).  Insider trading, like fraud results in theft and capital mis-allocation.  When captial and resources are mis-allocated there are real fucking consequences either way.  Prepare.

Catullus's picture

Insider trading, like fraud results in theft and capital mis-allocation.

Theft how?  What are you stealing from whom? You have to have a victim.  Looking at the unemployment line... those people probably didn't have any shares in anything.  There is no direct consequence between these things.

I agree on mis-allocation of capital results in a lot of bad things.

But let's dive into that further.  Would you rather have money allocated into equity markets where money (resource) managers investigate a company, their products, suppliers?  Hell, talk to regional sales VPs and maybe a handful of customers to gage their customer experience.  How about the strategy and analytics director that is running the P&L for a new business unit? You talk to these people (mostly very honest middle managers with decades of actual experience running the business) and then you form an opinion or a guess about if the business is viable and profitable over the long haul.  And then you decide if you're going to risk other people's savings into this business venture. 

OR

Would you rather just have the mutual fund manager subscribe to a bunch of RSS feeds, attend a few roadshows, maybe talk to their Ivy league chum CFO/CEO once or twice a year, get the intern to run a few models, and then decide to allocate money by throwing a bunch of darts at the wall and pray?

jcaz's picture

Please... Your attempt to make a psuedo-intellectual point here is nothing more than your vanity showing...

Why not make the point that "murder hurts no one",  also?   Taken to the pointless extremes you're willing to go, it can be done.

Your entire position is fatuous- you need to crawl back to your Philosophy 101 class- spring break is almost over, shoo shoo.....

Catullus's picture

Intelligent points are vanity to you.

 

buzzsaw99's picture

You are disingenuous and full of crap.

Catullus's picture

Possibly. 

But I've worked long enough in various roles to see that executive management more often than not is selling a story that the rest of the organization has no alignment on or could possibly deliver.  As it stands under the current laws, information simply does not flow through to people who are investing their money.  I can't understand how anyone could even imagine that what they're doing in the US equity markets could even been construed as investing when they don't even know what is being sold or what they own.  It's gambling.

And insider trading laws amount to nothing more than a fashionable set of obtuse victimless laws that prey on an idiot public's envious desire to lynch someone who has money.

MachoMan's picture

That would be a grea theory but for the fact that it's a zero sum game...  one person wins from a trade, one person loses.  Ergo, it's not victimless.  Ask yourself how certain firms/entities manage to have no trading days with a loss for quarters on end... 

While I agree that it's wild speculation, it doesn't change the fact that, as a public policy measure, we desire for people to be on an equal playing field for that information.  As a result, it is our objective for those who "do their homework the best" to benefit the most from the transaction...  unfortunately, some folks break into the school the night before the test and get all the answers.

Your premises is that anyone who puts money up for investment has agreed to be divested of it all, regardless of the underlying circumstances...  I'm glad that you can ignore thousands of years of human history to the contrary (aside from rudimentary emotional truths present in every human), but that doesn't change the fact that you're wrong.

So, when you're sitting in the ivory tower pontificating on how to get more money, think about the scowles on the faces of those who were divested of that money through chicanery...  HINT: it isn't envy they're feeling.

Catullus's picture

One person wins and one person loses from a trade? Maybe you should go back to the thousands of years of human existence to ask why anyone decided to trade at all.

As for this point:
Your premises is that anyone who puts money up for investment has agreed to be divested of it all, regardless of the underlying circumstances...  I'm glad that you can ignore thousands of years of human history to the contrary (aside from rudimentary emotional truths present in every human), but that doesn't change the fact that you're wrong.

I don't even know what that means. Seems more ivory tower than what I'm saying: talk to the actual managers of the business to get a sense if it's heading in the right direction and if they deserve to have money sent their way. I took enough economics a decade ago to know they ain't fucking teaching that in B school

MachoMan's picture

One person wins and one person loses from a trade? Maybe you should go back to the thousands of years of human existence to ask why anyone decided to trade at all.

Apples and oranges...  Are you really trying to compare exchanging cash for a good or service or, alternatively, bartering, with exchanging cash (which may or may not be tied up in retirement accounts, etc.) for intangible assets like securities?  derivatives?  bonds?  You're painting a pretty wide brush here...  stay on topic.

So long as we're going to discuss that, care to also compare the rules, regulations, and norms of yesteryear along with the instruments of chicanery used?  I'm sure that you could find some form of a ponzi scheme with a caveman's sea shells, but I'm also guessing that he got the fuck clubbed out of him and his ass raped with a stick for the trouble.

talk to the actual managers of the business to get a sense if it's heading in the right direction and if they deserve to have money sent their way. I took enough economics a decade ago to know they ain't fucking teaching that in B school.

All you're saying is caveat emptor...  let the buyer beware...  We all get that and I think that's a great, rudimentary approach to a legal and business framework (it would really, really fix a lot of shit in the world).  However, that has nothing to do with structured markets nor the rules to which societies (the world over) decide to live.  The point is this, there are suckers born every minute and there are people who desperately want to take advantage of them as well as create new suckers, but WE DON'T TOLERATE THAT BEHAVIOR.  This is purely rent seeking activity that we choose not to promote in our society...  [despite the fact that the fraud continues purely based upon its existing force].

Let's take it from a different approach...  Could you please articulate what insider trading laws disincentivize?  Production?  Trade?  Anything of value?  What is our cost to have them?

 

jcaz's picture

Aww, aren't you precious.....

Catullus's picture

Thank you for contribution to this discussion.

jcaz's picture

What discussion?  You're a naive idiot, we're pointing it out to you-  that's not a discussion, that's a revelation....

Catullus's picture

You have nothing to contribute.  Fact.

Downtoolong's picture

Nice try Catullus, but I still don't think Cohen is going to hire you to replace Steinberg.

 

Catullus's picture

If only people could see how much bullshit the buy side is, they would realize how dumb insider trading laws are.

Clowns on Acid's picture

Just cause buy side is bullshit...doesn't mean insdier trading laws are dumb.

I think I know where you are going here, but you need to be more specific.

ZH'ers are not "Eat the Rich" crowd so you have gone off on the wrong track...

DoneThis2Long's picture

Insider trading is reserved only for politicians, and to prove it, they even made it legal!!! Of course, the size of donations to the Democratic Party's coffers, will be considered when looking over the trading records!!!

Catullus's picture

I see the "Eat the Rich" envious horde is out in full force at ZH today.  Look rich people who made lots of money; let's get'em! 

Sad.

Just perpetuating the Wall Street - DC connection with this.  Too short sighted to see that victimless crimes always benefit the established and well-connected. Beyond for some of you to think that SAC is a thorn in the side of a lot of people.  And even if they are trading on insider information, that means they're trading on facts.  And that it doesn't make some of you the tiny bit suspicious that they're being targetted (because the FBI can read everyone's emails now, that's their only source of evidence), speaks volumes about most of you. 

Good luck trying to convince anyone that HFT is manipulating markets.  Apparently only insider traders. Or they don't... or wait.  It's all confusing to me.  EAT THE RICH!!!

Brokenbroker's picture

Dude some rules are about making a system as fair as possible. Insider trading laws are necessary or else u wouldnt have an efficient fliw of capital. And prople wouldnt feel confident they arent being hosed. Not sure if u know any "insiders" but i work with a great number of executives and many could have ir would have sold everything or bought in information they had if they could but i know if they could i wouldnt trust the other side of my trade. It wouldnt be fair. No one got murdered but if someone bought a huge block trade before hand from SAC in a private placement and then got hosed on the release of the said info than that might help u put dollars and sense on it. But some laws exist because the whole systrm would breakdown if insiders could trade on inside info that no one else had. In fact, if they had a million dollar salary but knew for sure which way dell would trade at certain times than the could get much richer by orders of magnitude levering up and buying options on a direction and manipulating events and press releases and the like in one direction and set them up for a huge disappointment. There would be more money to be made investing on inside info instead of managing thr company well. The system would just break down. There would be no trust. Doesnt mean there isnt liars and bullshit outbthere but in the end u have to have rules or the system doesnt work. Of course with politics and limited resources they will only go after those that serve some purpose politcally and the system is totally a farce in many regards but your premise while having a point that there is no victim is beside the point. The rule exists so that there is some trust in the system. Unfortunately the trust is eroded in numerous ways. But insider trading needs to be illegal. Or i wouldnt nor would anyone invest. Channel checks are different than trading on merger news. U cant have insiders trading on merger news ahead of time. Trust me. The whole thing wouldnt work.

Catullus's picture

I do work with insiders.

There's a lot of moving parts there.

Here's one of the problems with insider trading laws. It creates the two tiered system of information you're talking about. And because it is illegal, it's that much more valuable because who would risk giving you bad insider information? Without the insider trading laws, someone who gives you a tip needs to be approached with that much more suspicion. "how do you know that?" "I know a guy." "then why are you telling me?"

As far as front running a merger or announcement, for as many times as someone would bet one way, the shares can just as easily move in the other direction depending how the news is taken. But I honestly think this has more to do with a corporate governance issue that's too much to discuss here.

For efficient deployment of capital, no one has a crystal ball here. For as much as anyone can have perfect knowledge of what is occurring, they have no idea of what will or in what timeframe it will occur. It seems to me that it's only a post hoc ergo prompter hoc argument. Meaning no one knows that any potential harm might have occurred until after the fact. You can't at any given point in time know what will happen, you cant know that what you're doing is wrong until after it occurs.

Sudden Debt's picture

 

 

SUPPOSE I HANDLE YOUR MONEY!!

1. I BUY A PENNYSTOCK

2. I PUMP IT

3. I SELL IT TO YOU

4. I DUMP IT

 

indeed... nothing wrong with inside trading... love it...