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Ex-SAC Analyst Horvath Says He Provided Inside Info to Boss Steinberg Because He Feared Firing

Ex-SAC Analyst Horvath Says He Provided Inside Info to Boss Steinberg Because He Feared Firing

Testimony Comes as Steinberg’s Trial for Alleged Insider Trading Continues

JAMES STERNGOLD

Updated Nov. 27, 2013 5:48 p.m. ET

A former analyst at SAC Capital Advisors LP testified in court Wednesday that he believed he would be fired if he didn’t provide inside information to his boss, Michael Steinberg.

The analyst, Jon Horvath, said that Mr. Steinberg, a portfolio manager at the hedge fund and currently on trial for alleged insider trading, confronted him after a losing trade in mid-2007 and told Mr. Horvath he had to deliver “edgy, proprietary information” for Mr. Steinberg to use. Mr. Horvath said he assumed Mr. Steinberg meant inside information and that he would be fired if he failed to produce profitable tips.Mr. Steinberg has pleaded not guilty to the charges, and his lawyer has indicated in court documents that he was unaware that any of the analysis Mr. Horvath had provided was obtained illegally.

The testimony marked one of the more dramatic moments in the trial of Mr. Steinberg in U.S. district court in Manhattan and provided, for the first time, a clear explanation for the motives behind the alleged scheme. Previously, the government had said in court filings only that Mr. Horvath had gathered the inside information and passed it on to Mr. Steinberg but hadn’t discussed why.

Mr. Horvath, the government’s star witness in the trial, took the stand for three hours Wednesday. Mr. Horvath’s testimony is expected to be essential to prosecutors, as he may be the only government witness who can directly connect Mr. Steinberg to alleged inside tips on technology stocks. Mr. Horvath’s testimony is expected to continue next week.

Mr. Steinberg, 41 years old, is accused of making illegal trades in 2008 and 2009 in shares of Dell Inc. and Nvidia Corp.NVDA +0.38%

and was allegedly at the end of a five-person chain that prosecutors say engaged in a broad conspiracy to pass illegal tips on technology stocks. Mr. Horvath was the link connecting Mr. Steinberg to the alleged conspiracy, according to the prosecutors.

Mr. Horvath pleaded guilty in 2012 to charges that he obtained the insider tips about Dell and Nvidia from an analyst at another hedge fund, Jesse Tortora, who has also pleaded guilty to insider-trading charges.

Five other former SAC employees have either pleaded guilty to or been found guilty of insider trading. Earlier this month, the firm agreed to plead guilty to criminal charges related, in part, to the trades Mr. Steinberg allegedly placed using Mr. Horvath’s illegal information.

On Wednesday, Mr. Horvath painted a complicated picture of how information was shared and used at SAC, and how he handled the tips from Mr. Tortora. He said that, after Mr. Steinberg’s ultimatum, he turned to Mr. Tortora, an old friend, but that he didn’t initially recommend trades based on Mr. Tortora’s tips.

Instead, for several quarters, he held on to the information and compared it against Dell’s disclosures to check the accuracy. Only in 2008, after he had come to trust the tips, did he start using them as the basis of his recommendations for Mr. Steinberg’s Dell trades, Mr. Horvath testified. He also said that, even after obtaining what he believed was solid information, the tips were “just one of the inputs” he used to determine whether to recommend that Mr. Steinberg buy or sell the stock.

Mr. Horvath said the critical moment in his SAC career came in mid-2007, when the firm lost nearly $2 million on a trade he recommended involving stock in the computer company Network Appliance Inc., NTAP +0.86% now NetApp Inc.

That is when Mr. Steinberg allegedly confronted Mr. Horvath and gave him the new orders. “I thought he wanted me to cultivate…sources of nonpublic information,” Mr. Horvath said. He added that he had never obtained illegal tips before that conversation.

Mr. Horvath testified that, by 2008, he was gathering three to five tips, or “checks,” from Mr. Tortora every quarter on Dell’s expected earnings and sharing them with Mr. Steinberg.

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About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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