Familiarity between those in a particular industry is not uncommon, but when it jumps the line from professional acquaintance to secret society cohort, things can go awry quickly. And maybe that familiarity is why four former hedge-fund employees are waiting to stand witness against SAC Capital Advisor LP fund manager Michael Steinberg, after they pleaded guilty to insider trading charges themselves. Steinberg faces up to 20 years if convicted.
Many of those involved are directly linked to Stamford Conn.-based hedge fund SAC Capital Advisers, which lead prosecutor U.S. Attorney Preet Bharara has called, “a veritable magnet for market cheaters.”
The group in question included Ex-SAC analyst Jon Horvath and ex-Diamondback Capital Management LLC analyst Jesse Tortora who vacationed, gambled and conspired together for their mutual benefit. While there were more members of the group, only four have pleaded guilty thus far. Tortora is currently in the process of completing his testimony against Steinberg, and Horvath is expected to take the stand shortly thereafter, Bloomberg reports.
The group was responsible for funneling tips on technology companies between its members, including advanced notice that the Dell computer company would miss an earnings report in 2008. This industry insight allowed members to get a head of major market movements, and make millions in the process.
Much of the information was circulated via an email list, and while Tortora testified that the list was not surreptitious, the first rule listed in an induction message to a new member was a direct allusion to the secret meetings in the movie “Fight Club.”
“Rule number one about email list, there is no email list,” Tortora wrote in a March 2009 email introducing a newcomer to the group reports Bloomberg. “Rule number two, only data points can be sent, no sarcastic comments. Enjoy. Your perf[ormance] will go up by 100% in 2009 and your boss will love you. Game theory ... look it up.”
The questionable motivation and communication methods used by this group are not unrelated to a recent crackdown on chatrooms used to exchange insider information by traders. Many hope that these types of cases are a sign of tougher action against those who would cheat the system.
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