May 22, 2013
May 22, 2013 — The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) of 2010 created a Securities and Exchange Commission (SEC) whistleblower program to allow the agency to accumulate and investigate information from securities industry insiders who notify the government about fraudulent misconduct. The Dodd-Frank Act permits an informant to take home up to thirty percent of the amount the government receives due to the whistleblower’s information, as long as the amount exceeds $1 million. Tipsters use the whistleblower program to report everything from insider trading to scams that defraud investors.
The SEC has made new charges in connection with an insider trading scam alleged to have occurred at Sigma Capital Management in 2008 and 2009.
Michael Steinberg is a portfolio manager at Sigma Capital Management, a hedge fund advisory firm in New York. In 2008 and 2009, the SEC alleges, Steinberg used insider tips to trade Dell and Nvidia Corporation securities in advance of four separate quarterly earnings announcements. The illegal tips came from Jon Horvath, an analyst at Sigma Capital who reported to Steinberg. Horvath received the information from other hedge fund analysts with whom he stayed in constant contact.
In April of this year, Sigma Capital and two of its related hedge funds settled the SEC’s related insider trading charges for $14 million. The SEC charged Horvath last year along with several other analysts and hedge fund managers implicated in the agency’s investigation of hedge funds and insider trading.
After receiving the tips from Horvath, Steinberg allegedly passed on the illegally-acquired information about Dell to another Sigma Capital portfolio manager. Within minutes of learning the news from Steinberg, the other portfolio manager began dumping shares of Dell. According to the SEC, Steinberg’s illegal trading allowed Sigma Capital hedge funds and those managed by the related S.A.C. Capital Advisors to manufacture over $6 million in profits and avoided losses.
Some of the SEC’s charges are alleged to be supported by a treasure trove of email communication among Horvath, Steinberg and others.
When analysts and investment firm managers use email communication to spread nonpublic information in advance of earnings statements, investment firm employees or other securities industry insiders are bound to find out sooner or later. When those insiders are brave enough to come forward, they should learn about their own rights under the Dodd-Frank Act. The whistleblower attorneys at Waters & Kraus have the experience to safeguard the interests of government collaborators. Contact us by email or call our securities fraud lawyers at 855.784.0268 to discuss your rights under the Dodd-Frank Act.
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