Hopefully the $155 million purchase of Picasso's "Le Reve [9]" 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 [10](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 [11]:
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.