Problems Continue for SAC, Senior Employees

There’s an old saying that what comes around, goes around. Michael Steinberg, who is one of the upper executives with SAC Capital Advisors, answered his door this past Friday only to be met by a team of FBI agents with an arrest warrant. Life has suddenly become far more complicated for the incredibly rich man who had plenty of credit cards, cold cash, investments and all of the other materialistic choices few will never be privy to.

The Scandal

The SAC scandal has so far resulted in a massive multi-year investigation into insider training, multi million dollar fines from the SEC and criminal investigations into several of the hedge fund’s current and former employees. It continues to heat up with Steinberg’s arrest as well as a court ruling that struck down one of the settlements. The decision behind striking down that particular settlement has to do with the judge and his concerns over one of the provisions that would allow the hedge fund to bypass any admissions of wrongdoing. Both of these occurrences – the judge’s refusal as well as Steinberg’s arrest – were just hours apart. The ruling totaled $602 million and if it had been allowed, would have been the second that totaled more than $6 million.

Friends of Michael Steinberg appear to be standing by him and continue to reiterate his genius financial mind. In his early twenties, he approached and was hired at SAC Capital Advisors. It was a small hedge fund owned by one of the most recognized Wall Street personalities, Steven A. Cohen. Soon, Steinberg was bringing record profits into the company and was quickly promoted up the career ladder. He’d earned tens of millions in his first two years and soon had earned Cohen’s trust and loyalty. Before long, Steinberg was living well, one black tie dinner after another, an address on Park Avenue and a beautiful home in the Hamptons.

And Now This

Steinberg’s arrest brings the total to nine of employees who are looking at individual charges. Of those nine, four have pleaded guilty. It would appear that most of those who are now in the crosshairs allegedly agreed to help a man they had never met. And now they’re in hot water with, at a minimum, a loss of their career possibilities and in the worst cases, perhaps even jail. In November, another former portfolio manager was arrested because it’s believed he was involved in unethical practices. It should be noted, too, that the founder and owner of the hedge fund has not been charged in any way.

Steinberg appeared before a Federal District Court judge hours after being arrested. He was released by Judge Richard J. Sullivan on a $3 million bond. Meanwhile, his lawyer, Barry Berke, said his client had did nothing wrong and that he was simply caught in the cross fire of “aggressive investigations of others…with no basis for even the slightest blemish on his spotless reputation”.

For those former employees who have found themselves in rapidly rising hot water, it’s interesting to note that their employer has opted to ignore them and refuse to meet with them, yet after Steinberg’s arrest, a press release made it clear that the company absolutely supported him, stating,

We believe him to be a man of integrity.

As mentioned, the investigation has been going on for years and there have been many employees who were approached at different times by law enforcement in hopes of getting them to provide information to the government. At one point, the FBI showed a sheet of paper with photos of six employees in a “six pack” style that’s often used in in police departments to work alongside lineups of potential suspects. The agents made remarks about the similarities between former crime bosses and SAC executives.

Steinberg has been on the FBI radar for at least six months. During a plead and subsequent sentencing of a former SAC analyst for participating in insider trading, Jon Horvath implicated Steinberg and said confidential information was given to Steinberg so that trading for both Dell and Nvidia would prove profitable. When Steinberg was arrested, he was charged with conspiracy and securities fraud specifically citing those two accounts. In the meantime, another lawsuit was being prepared and now Steinberg faces the SEC.

Another jury heard the case surrounding two hedge fund managers with SAC and found them both guilty. They too specifically mentioned Nvidia and Dell. And, like the first reference, Steinberg was named in that investigation. In fact, emails have surfaced that allegedly prove Steinberg’s role in the entire scam. Steinberg was said to have acknowledged receiving the data and warnings issued by him that it mustn’t be disclosed. Later, Steinberg emailed other managers with details on conversations he had with others that also implicated him. “Guys, I was talking to Steve about Dell earlier today and he asked me to get the two of you to compare notes before the print” – meaning ahead of the company’s earnings release — “as we are on opposite sides of this one,” he wrote.

The past few months have been difficult and it’s been said ever since his name was mentioned, he’s often stayed in New York City in hopes that if he were arrested, his children wouldn’t witness their father in handcuffs. When Steinberg asked if he could surrender himself at FBI headquarters, again in the effort of protecting his children, the FBI declined and said just because he was a white collar criminal didn’t negate the importance of procedure and that no one would give him any “special treatment”.

While Cohen hasn’t been named, many are wondering about a $10 billion shopping spree he indulged in last week. Paying millions of dollars for a Picasso painting, $60 million on another ocean front party and a host of other materialistic choices was just the highlight, too. It’s believed he spent billions on fanciful purchases, even with the growing fears.

Where there’s smoke, there’s fire and for many, all eyes are closely watching to see who falls next and what the ultimate result will look like. What do you think? Should long federal prison sentences be doled out to white collar criminals? What about criminal charges filed against these suspects?

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