Portfolio Manager Steinberg Accused of Inside Trading

MANHATTAN - Michael Steinberg, a portfolio manager at Sigma Capital Management, traded on and shared inside information to make and avoid losses of $6.4 million, federal prosecutors and the SEC claim in Federal Court.

Steinberg was arrested Friday morning at his Park Avenue home for his alleged role in an insider trading scheme involving shares of Dell Inc. and Nvidia Corp.

He pleaded not guilty and has denied the charges through his lawyer, according to wire reports.

A federal grand jury indicted Steinberg on one count of conspiracy to commit securities fraud and four counts of securities fraud. Prosecutors say Steinberg received inside tips from (nonparty) Jon Horvath, his former analyst at (nonparty) Sigma Capital Management, a unit of Steven A. Cohen's SAC Capital Advisors.

With $15 billion in assets, SAC is one of the nation's most successful hedge funds.

Prosecutors and the SEC say Steinberg traded on inside information Horvath fed him about Dell and Nvidia's quarterly financial results. Horvath allegedly received those tips from insiders at the technology companies.

In one August 2008 email exchange between Horvath and Steinberg, Horvath informed Steinberg that Dell would miss its earnings per share in an upcoming report.

"Please keep to yourself as obviously not well known," Horvath wrote, according to court records.

Steinberg allegedly responded, via email, "Yes normally we would never divulge data like this, so please be discreet."

"Based on this inside information, Steinberg executed illegal trades in advance of at least four quarterly earnings announcements during 2008 and 2009 and, on at least one occasion, arranged to share the Dell inside information with another portfolio manager at Sigma Capital," the SEC claims.

In spring 2009, Horvath tipped off Steinberg that Nvidia's gross margins would be lower than market expectations, according to prosecutors and the SEC.

Steinberg acted on that information with trades that prosecutors describe as "the economic equivalent of a short sale" of Nvidia stock. He then liquidated his portfolio's entire position in Nvidia stock after the earnings report was released and the stock price dropped by more than 13 percent, the indictment states.

Cohen's hedge fund, SAC, has faced civil and criminal investigations accusing at least six other current and former employees of inside trading. Four pleaded guilty to federal charges, including Horvath, who is now cooperating with authorities.

SAC recently agreed to pay $616 million to settle two inside-trading lawsuits brought by the SEC.

Cohen has not been charged with wrongdoing.

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