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From Securities Regulation Daily, May 16, 2014

Steinberg gets 3.5 year sentence for insider trading, to pay over $2.3 million

By Mark S. Nelson, J.D.

A federal judge in Manhattan today sentenced Michael Steinberg to 3.5 years in prison for insider trading. Steinberg was convicted of four counts of securities fraud and one count of conspiracy to commit securities fraud. The court also sentenced Steinberg to three years of supervised release and ordered him to pay both a $2 million fine and a forfeiture of more than $365,000 (U.S. v. Steinberg, May 15, 2014, Sullivan R.).

“Michael Steinberg traded on information from company insiders at Dell and NVIDIA to reap nearly $2 million in illegal profits,” Manhattan U.S. Attorney Preet Bharara said in a press release. “Today he has learned the steep cost of those transactions.”

Steinberg was indicted in March of last year for allegedly trading on inside information about Dell, Inc. (Dell) and NVIDIA Corp. (NVIDIA). Steinberg was a portfolio manager for S.A.C. Capital’s Sigma Capital Management, LLC (Sigma) division. The indictment alleged that Steinberg got inside information from a complex network of tippers about Dell and NVIDIA prior to their publicly announcing gross margins that disappointed investors.

After Dell’s and NVDIA’s announcements, their stock prices fell by as much as 13 to 14 percent. Meanwhile, according to prosecutors, Steinberg was able to close out his short positions and options contracts in Dell in time to net $1 million for Sigma. Likewise, Steinberg gained $350,000 by facilitating Sigma’s exit from its NVIDIA holdings. Last December, a federal jury convicted Steinberg of all five insider trading charges after a four-week trial.

Just yesterday, the court rejected Steinberg’s motion for judgment of acquittal. Lawyers for Steinberg had argued that no rational trier of fact could find that one of the tippers “understood” the information was for trading securities or that Steinberg “had knowledge” one of the tippers got the material, nonpublic information by breaching a fiduciary duty. Steinberg’s lawyers also argued that he did not know of payments to the tippers or that Dell and NVIDIA trades were based on inside information.

The case is No. 12 Cr. 121 (RJS).

Attorneys: Antonia Marie Apps, U.S. Attorney's Office, for the U.S. Barry Berke (Kramer Levin Naftalis & Frankel, LLP) for Michael Steinberg.

Companies: S.A.C. Capital; Sigma Capital Management, LLC; Dell, Inc.; NVIDIA Corp.

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