Michael Steinberg, the SAC Capital Advisors fund manager who was indicted last week on insider trading charges, has begun his criminal defense with an unusual goal: to find a new judge.
On Friday when Steinberg was indicted, his lawyer Barry Berke asked U.S. District Judge Richard Sullivan to allow the case to be randomly assigned to a new judge.
Berke claimed Sullivan had in a past insider trading case given prosecutors an easier burden to meet compared to rulings by two other judges. He called this a "significant legal issue."
Sullivan said he would "consider" letting Steinberg's case be re-assigned, but hinted that might not happen.
"Don't believe Mr. Berke, I'm not as bad as he says," he told Steinberg. "If you get stuck with me, it could be worse."
The case landed before Sullivan as prosecutors, rather than seeking an all-new indictment, obtained a superseding one. Prosecutors said this made sense since Steinberg's case is related to one that went to trial last year before Sullivan.
Court records show Sullivan has imposed harsher sentences than other judges in insider-trading cases, although Steinberg's lawyers did not mention that factor.
The government has charged Steinberg with insider trading involving shares of Dell Inc and Nvidia Corp. A different judge may be more likely to hold that the government at trial must prove that Steinberg knew about the personal benefits that stock tippers received in exchange for non-public information about the companies.
Sullivan did not require such proof at last year's trial of Todd Newman, a former portfolio manager at Diamondback Capital Management, and Anthony Chiasson, co-founder of Level Global Investors. The two, who were convicted by a jury in December, are listed as co-conspirators in Steinberg's indictment.
Two judges who did require the government to provide more proof in insider trading cases were U.S. District Judge Jed Rakoff in the trial of California hedge fund manager Doug Whitman; and U.S. District Judge Richard Holwell in the trial of Galleon Group founder Raj Rajaratnam.
Holwell left the bench last year.
Stephen Crimmins, a white collar defense lawyer at K&L Gates, said he did not think Sullivan will recuse himself, adding that judges don't normally recuse themselves because they disagree with colleagues about interpretations of the law.
But Crimmins said the question of what Steinberg knew is particularly relevant given how far removed he was from the original stock tip.
"As you get farther and farther away from the source of the information, it gets harder and harder for the government to show knowledge and intent, especially in a criminal case," Crimmins said on Monday.
DEGREES OF SEPARATION
Prosecutors accused Steinberg of trading in Dell shares based on advance information about the computer maker's quarterly results from Jon Horvath, a former SAC analyst who pleaded guilty in September.
Prosecutors say Horvath received the tip from Diamondback analyst Jesse Tortora, who had gotten it from Neuberger Berman analyst Sandeep Goyal. Goyal, in turn, received the information from an employee at Dell, his former employer, prosecutors said.
A U.S. Securities and Exchange Commission complaint says that in exchange for the tip, Tortora directed $175,000 in illicit payments to Goyal. Both Goyal and Tortora have pleaded guilty and are cooperating with Steinberg's prosecutors.
Steinberg's lawyer Berke, of Kramer Levin Naftalis & Frankel, said at Friday's hearing that allowing prosecutors to bring a superseding indictment would allow the prosecution "to simply judge-shop based on favorable rulings in related cases."
"MANY OF THE SAME WITNESSES"
Lead prosecutor Antonia Apps said there were a "good number of precedents where the government has superseded into existing cases." She called bringing a superseding indictment the "obvious thing to do," given the overlap with the prosecutions of Newman and Chiasson, and given that Horvath was expected to be a witness against Steinberg should the case go to trial.
"Many of the same witnesses, in fact almost all of the witnesses will be the same witnesses again," she said.
Since the government announced its broad-based insider trading probe in 2009, Sullivan has imposed two of the three longest prison sentences. He sentenced former securities trader Zvi Goffer to a 10-year term and sentenced former Galleon Group hedge fund trader Craig Drimal to 5-1/2 years.
Sullivan, who was appointed by President George W. Bush, said at Goffer's sentencing: "Insider trading is very, very hard to detect and because of that has to be dealt with harshly."
By contrast, Galleon Group founder Raj Rajaratnam, who prosecutors said earned $63.8 million from trading on inside information, was sentenced by Holwell to 11 years in prison after being convicted in 2011. That was only one year more than Goffer's sentence. All the defendants are appealing.
The case is U.S. v. Steinberg, U.S. District Court, Southern District of New York, No. 12-cr-00121.