SEC Drops Insider Trading Case Against Ex-SAC Portfolio Manager


Last week the US Securities and Exchange Commission dropped its insider trading case against former SAC Capital portfolio manager Michael Steinberg following the Supreme Court’s refusal to hear the controversial Newman appeals court decision.

SEC Move Expected

The SEC’s decision to drop its case against Steinberg had been expected after U.S. Attorney Preet Bharara dismissed its criminal insider-trading charges against Mr. Steinberg last month, explaining that the 2nd Circuit Appeals Court’s Newman ruling had effectively overturned Steinberg’s 2013 conviction.

In December 2013, a jury initially found Steinberg guilty of using inside information to trade shares of Dell and Nvidia, generating $1.8 million in profits.  Steinberg was sentenced to 2 to 3 ½ years in federal prison.  The original conviction was seen to be a landmark ruling as Steinberg was a close confidant of SAC founder Steve Cohen.  Cohen, however, was never accused of wrongdoing.

Newman Ruling Unwinds Insider Trading Convictions

In its December 2014 ruling, the Second Circuit Court of Appeals concluded that US government prosecutors had presented “no evidence that Newman and Chiasson knew that they were trading on information obtained from insiders in violation of those insiders’ fiduciary duties.”  The appeals court found that without this evidence, Todd Newman and Anthony Chiasson could not be found guilty.

The court argued that to be convicted of insider trading a person must have direct knowledge that the insider providing the material non-public information was breaching his or her duty to the company by doing so, and that the source also received a significant “pecuniary benefit” in exchange for the information they provided.

Ultimately, this rationale prompted the US Attorney’s office to drop its charges against Michael Steinberg, as well as the six cooperating witnesses who plead guilty in connection with the same insider trading case addressed in the United States v. Newman and Chiasson.

Our Take

The SEC decision to drop its case against Michael Steinberg was a mere formality once US Attorney Preet Bharara dismissed his insider trading case.  However, the two outstanding cases which could be impacted by the Newman decision is SAC’s insider trading guilty plea (and the $1.8 bln penalty) and the SEC’s civil “failure to supervise” case against SAC founder Steve Cohen.

While we doubt the US Attorney or SEC will voluntarily drop their cases against SAC or Steve Cohen, it is a real possibility that Point72 might try to fight the SEC and the US Attorney to drop its charges against the two.  If this takes place, we would not be surprised to see the US Government suffer one more loss in its long running battle against insider trading.



About Author

Mike Mayhew is one of the leading experts on the investment research industry. In addition to founding Integrity Research, Mike is on the board of directors of Investorside Research Association, the non-profit trade association for the independent research industry, and a frequent speaker on research industry trends and developments. Mike has over thirty years of research industry experience. Email:

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