While the clock ticks and SAC Capital founder Steven Cohen contemplates a more complicated future, SAC watchers have been focused closely on the end of July, after which, it is presumed, the billionaire art collector may be able to let out a deep sigh of relief. That is when the five-year statute of limitations expires on trades in Elan (ELN) and Wyeth (PFE) that form the basis of an insider trading case filed in November against former SAC portfolio manager Mathew Martoma. Cohen, the government alleges, participated in those Martoma trades, which occurred in July 2008. If the U.S. Attorney’s Office for the Southern District of New York, the FBI, and/or the U.S. Securities and Exchange Commission can build a case against him based on those trades, they have to bring it in the next four weeks. But an even more important deadline is looming a few weeks later.
On August 26, 2008, Jon Horvath, an analyst who was then employed at Sigma Capital, a unit of SAC, sent an e-mail to one of his superiors, a portfolio manager at SAC’s $2 billion Sigma Capital Fund named Gabriel Plotkin: “I have a 2nd hand read from someone at the company—this is 3rd quarter I have gotten this read from them and it has been very good in the last quarters,” read the e-mail, according to an SEC complaint. “They are seeing GMs miss by 50-80 [basis points] due to poor mix, [operating expenses] in-line and a little revenue upside netting out to an [earnings per share] miss … Please keep to yourself as obviously not well known.” The e-mail was referring to the computer maker Dell (DELL), which was to report its second-quarter earnings two days later. Horvath, the government alleges, was discussing Dell’s results, gleaned from a company insider before they were public, which would clearly put the information over the line into illegal territory.
Another Sigma portfolio manager, Michael Steinberg, who has since been charged by the government for insider trading over the Dell trades, was copied on the e-mail, and responded: “yes, normally we would never divulge data like this, so please be discreet.”
Shortly after getting Horvath’s message, Plotkin began dumping Dell shares held by the Sigma Capital Fund, ultimately selling 600,000 of them by the time Dell’s earnings were announced, according to the complaint. Steinberg and Plotkin also sold shares on behalf of the SAC Select Fund, another fund in the SAC family.
They weren’t the only ones at SAC Capital exchanging information about Dell. “Guys, I was talking to Steve about Dell earlier today and he asked me to get the two of you to compare notes before the print, as we are on opposite sides of this one,” Steinberg wrote in an e-mail to Horvath and Plotkin. The “Steve” refers to their boss Steven Cohen, who engaged in his own Dell trading at the time. The e-mails became public during the trial of Anthony Chiasson, the former SAC trader and Level Global Investors founder, and Todd Newman, of Diamondback Capital, who were both convicted of insider trading in December. In the absence of testimony from Martoma—who has, thus far, refused to cooperate with the government—Cohen is far more vulnerable to charges over Dell, according to a person familiar with the matter. Those cursed Dell trades have already taken down at least half a dozen traders. By the time August arrives, Cohen will likely wish he’d never heard of Dell.
Horvath pleaded guilty and has been cooperating with the government; Steinberg has pleaded not guilty; Plotkin and Cohen have not been charged. “Gabe Plotkin has not been accused of wrongdoing and has done nothing wrong,” SAC has said previously. “He has built a successful career on a commitment to sound fundamental research.”
