An interesting thing happened yesterday at
the trial of Michael Steinberg, the SAC portfolio manager accused of insider trading.
It’s a fun lesson in semantics, insider trading, or none of the above. We’re not quite sure.
The gist of the trial is this: Steinberg was the boss of a former SAC analyst named Jon Horvath. Horvath pleaded guilty to insider trading and is now the government’s star witness against Steinberg. Their old firm, SAC, pleaded guilty to insider trading, coughed up almost $US2 billion in fines, and will morph from one of the world’s meatiest hedge funds to a family office.
Last week in court, Horvath testified that after a bad stock pick in 2007, Steinberg approached him on the trading floor and told him to provide “edgy, proprietary information” that would lead to the firm making good trades, reports the Wall Street Journal.
According to Horvath’s testimony, Steinberg never actually said, “OK, go do illegal insider trading now,” but Horvath got the memo. Have an edge. Be edgy! Break the law or you’ll be out of here, he figured.
This is where things get interesting. When Steinberg’s lawyer, Berry Berke, cross-examined Horvath yesterday, he “showed Mr. Horvath a number of SAC documents explaining research methods that used the words ‘edge,’ ‘edgy’ and ‘proprietary,’ including an email that he said Mr. Horvath was sent on his first day of work at the firm in September of 2006.”
As in, edginess was in your job description, buddy! “After a series of testy exchanges about the documents,” Horvath said that Steinberg used the terms “proprietary” and “edgy” throughout his tenure at the firm.
Of course, Horvath interpreted this as “find me material non-public information on which to trade,” and so that’s exactly what he did. He testified that he had sources inside Dell, among other places, and that he passed inside information on to Steinberg.
Steinberg’s take seems to be, “Hey, not my problem you misinterpreted what edgy means.”
What to make of all this? Is this one of those “depends on what your definition of is is” kind of moments? Or did Steinberg’s “edginess” dictum contain the implicit wink all along? I guess that’s why we have juries.