Witness Tells of Pressure From SAC Trader to Get More Insider Data

Photo
Jon Horvath testified for a third day in the insider trading trial of Michael S. Steinberg.Credit Mary Altaffer/Associated Press

Between 2007 and 2009, Jon Horvath developed a regular routine as a trader at SAC Capital Advisors: obtaining confidential information about Dell Inc.’s financial results well before the computer company’s quarterly disclosures.

And those efforts, Mr. Horvath detailed for a jury on Monday in a Manhattan federal district courtroom, were made with the full knowledge of his boss, Michael S. Steinberg.

During his third day of testimony as a prosecution witness in Mr. Steinberg’s insider trading trial, Mr. Horvath described repeatedly gleaning early peeks into Dell’s sales. Knowing that information well before the market gave SAC an edge in betting against the company’s stock. That helped the hedge fund, particularly in the summer of 2008.

Related Links

“Nice job on Dell,” Steven A. Cohen, SAC’s billionaire founder, wrote in an email to Mr. Steinberg and Mr. Horvath in late August that year.

The lengthy testimony is meant to buttress federal prosecutors’ contentions that Mr. Steinberg repeatedly encouraged Mr. Horvath to cross legal lines in pursuit of information with an edge. Mr. Horvath previously said in court that he did so to save his job. The trial is taking place just a few weeks after the firm pleaded guilty to criminal insider trading charges.

Mr. Horvath has pleaded guilty to insider trading and is aiding prosecutors in their pursuit of Mr. Steinberg, one of SAC’s earliest employees and most senior traders. The defense team has not yet had its opportunity to cross-examine Mr. Horvath, but is likely to seek to discount his testimony.

Throughout much of Monday, Mr. Horvath described months of conversations that he had with Jesse Tortora, a friend at another hedge fund who supplied the Dell information. Prosecutors repeatedly showed the jury emails between Mr. Horvath and Mr. Steinberg recounting the specific guidance about how Dell was performing in the quarter and how to tailor their trading strategy in light of the news.

“Sure, this data is secondhand but this contact was correct in the last two quarters,” Mr. Horvath wrote in one message on Aug. 25, 2008.

Mr. Horvath also developed a relationship with Danny Kuo, an analyst at another hedge fund who had gained access to someone in the accounting department at the graphics chip company Nvidia. The initial leaks from Mr. Kuo proved decent, but without the specifics that SAC wanted to gain a real advantage.

“Now we are going into this print with zero edge,” Mr. Horvath wrote in an email to Mr. Steinberg in early February of 2009, complaining that the first financial figures lacked specifics into Nvidia’s coming earnings report.

More numbers followed, however, and such was the precision provided by Mr. Kuo that some performance figures were enumerated to fractions of a percent.

In court, Mr. Horvath admitted that he knew that the Nvidia data he was receiving was coming from “clearly an improper source of information.”

Yet the efforts to obtain the financial information from both Dell and Nvidia lasted for several quarters under Mr. Steinberg’s watch. Apparently irked that a previous trade built on advance knowledge of Dell’s results led to a loss because of market movements, the senior SAC trader ordered his underling in February of 2009 to “tell your boy to keep quiet.”

Later that month, Mr. Steinberg nonetheless praised Mr. Horvath’s efforts.

“A solid Dell call by you,” he wrote in an email. “We did pretty much as best we could.”

But defense lawyers, led by Barry H. Berke, are expected to press Mr. Horvath later this week on the details of the Dell and Nvidia leaks. Among the matters that Mr. Berke will most likely pursue is whether Mr. Steinberg actually knew that the information was obtained illegally, because his client was the last in a chain of those who were tipped off ahead of the earnings report.

Throughout much of Monday’s proceedings, Mr. Steinberg quietly watched his former trader testify, occasionally peering at documents displayed on a Dell laptop in front of him.