Three-and-a-half years in federal prison isn’t exactly a slap on the wrist. Still, with prosecutors gunning to put convicted insider trader Michael Steinberg behind bars for nearly twice that long, Steinberg’s sentencing on Friday could have gone much worse.
Now the former SAC Capital Advisors portfolio manager waits to see if his lawyer—and possibly a pending appeal in a related insider trading case—can help him win a new trial.
A Manhattan jury convicted Steinberg in December 2013, agreeing with federal prosecutors that he netted $1.4 million for SAC by trading tech company stocks based on insider information. At a hearing on Friday, U.S. District Judge Richard Sullivan sentenced Steinberg to a 42-month term. Sullivan agreed to stay the sentence, however, while Steinberg pursues an appeal.
Steinberg’s lawyers, led by Barry Berke of Kramer Levin Naftalis & Frankel, had proposed a two-year sentence. But Friday’s outcome was about the best they could have expected from Judge Sullivan. In insider trading cases against Anthony Chiasson and Todd Newman, two hedge fund leaders who were convicted in December 2012, Sullivan doled out harsher sentences of 78 months and 54 months, respectively. Prosecutors had urged Sullivan to put Steinberg away for for between five and six-and-a-half years, a term that’s within the U.S. sentencing guidelines.
Berke had argued in a May 2 brief that Steinberg, 41, should be spared a long sentence because of his charitable work and the emotional support he’s provided to his wife and young children. Sullivan reportedly called Steinberg “basically a good man” but said a middle-of-the-road sentence was needed because he engaged in “systematic trades over months and months.”
The U.S. Court of Appeals for the Second Circuit could throw Steinberg a lifejacket. On April 22 the court heard oral arguments in the Newman and Chiasson cases, which were consolidated on appeal. As noted by DealBook and others, the judges appeared receptive to Newman and Chiasson’s arguments that their convictions were based on an improper jury instruction. (Morvillo LLP, which represented Chiasson at trial, posted a transcript of the Second Circuit hearing here.) Newman and Chiasson are represented on appeal by Stephen Fishbein of Shearman & Sterling and Mark Pomerantz of Paul, Weiss, Rifkind, Wharton & Garrison, respectively.
Sullivan gave the same jury instruction in the Steinberg case, so Steinberg and his lawyers may be hoping to piggyback off an appellate victory for Newman and Chiasson. The appeals pose the question of what prosecutors must prove a defendant knew about the “tipper” in insider trading cases. The government argues that it just has to show defendants traded based on nonpublic information that a tipper disclosed through a breach of the duty of confidentiality. The defendants are proposing an additional hurdle, arguing that they can only be convicted if they knew that the tipper derived “some personal benefit” from the confidentiality breach.
Sullivan sided with the government on the question, breaking with a December 2012 ruling by his colleague Jed Rakoff in unrelated insider trading case against a former California hedge fund manager.
Since 2009, U.S. Attorney Preet Bharara has racked up an impressive 80-0 record of convictions in insider trading cases. Possibly hoping to preserve that record, Bharara’s office has been designating new insider trading cases as related to ones already assigned to Sullivan. Chief Judge Loretta Preska of the Southern District of New York said in an interview with Nate Raymond of Reuters that the government’s strategy has prompted a judiciary committee to consider new rules governing related case assignments.