ROBERT SIEGEL, HOST:
Legal troubles keep mounting for hedge fund manager Steven Cohen and his firm SAC Capital. Today, an appeals court judge in New York reinstated a lawsuit filed by his ex-wife, accusing Cohen of fraud. Last week, one of his top lieutenants was charged with insider trading and he was the fifth person associated with the firm to face arrest.
Still, as NPR's Jim Zarroli reports, U.S. officials have so far failed to bring charges against Cohen himself.
JIM ZARROLI, BYLINE: The latest domino fell last week when 40-year-old Michael Steinberg, a portfolio manager at SAC, was arrested at his Park Avenue apartment. Steinberg is said to be a friend and confidant of Cohen and he is by far the biggest fish nabbed by U.S. officials in their continuing investigation of the firm. The indictment spells out two cases in which Steinberg allegedly pocketed a total of $1.4 million through illegal trading.
Bradley Simon is a former federal prosecutor.
BRADLEY SIMON: That is classic insider trading, whereby they are trading on information that is given to them illegally and using it to make a huge profit.
ZARROLI: In the first case, in 2008, an unnamed insider at computer maker Dell passed on information about a pessimistic earnings report that was about to be released to the public. The information eventually made its way to SAC employee Jon Horvath, who allegedly passed it on to Steinberg. At one point, the government says, Horvath sent an email to Steinberg warning him not to say where the information came from.
UNIDENTIFIED MAN: Please, keep to yourself as obviously not well known.
ZARROLI: And Steinberg gave this reply.
UNIDENTIFIED MAN: Yes. Normally, we would never divulge data like this, so please be discreet.
ZARROLI: U.S. officials say Steinberg quickly shorted the stock, which means he bet that it would fall. And when the bad earnings news came out, he netted a million dollars for his firm. And officials say he did the same thing with shares of the technology firm Nvidia. Steinberg's lawyer has strongly denied that he committed any wrongdoing. Whatever the outcome, Steinberg's arrest brings U.S. officials one step closer to Cohen himself.
Cohen is a hugely successful hedge fund operator, said to be worth billions of dollars. But Dan Richmond, a former federal prosecutor says, tying Cohen to the insider trading at his firm requires stronger evidence than we've seen so far.
DAN RICHMOND: You're really looking for proof that goes a lot further than saying this guy was at the top of an organization that had some bad apples in it. You need to really show some participation on his part.
ZARROLI: But some of those arrested are now cooperating with the government, including Jon Horvath. And Richmond says the steady drumbeat of indictments and arrests could scare others into coming forward.
RICHMOND: One of the things the government thrives on is the fact that people read this indictment and think if I don't call the government first, they'll be at my door tomorrow.
ZARROLI: But Bradley Simon, for one, is skeptical that the trail will lead to Cohen. Simon notes that the Securities and Exchange Commission recently announced a $600 million settlement with SAC on insider trading charges. It's now being reviewed by a judge. Simon says he could be wrong, but he says it would be unusual for the SEC to proceed with a civil settlement if a big criminal case is forthcoming.
SIMON: The fact that he's settled with the SEC when supposedly there is this big criminal investigation going on, and he settled without an admission of wrongdoing, leads me to believe that he's been given some indication that they're not going to ultimately pull the trigger on him.
ZARROLI: And Simon points out that Cohen doesn't seem to be acting like a man who expects to go to jail anytime soon. He recently bought a big house in the Hamptons and he also spent $155 million on a Picasso painting. Still, the Justice Department insists its investigation isn't through yet and they're not ruling out charges against Cohen. Jim Zarroli, NPR News, New York.
(SOUNDBITE OF MUSIC)
AUDIE CORNISH, HOST:
You're listening to ALL THINGS CONSIDERED from NPR News. Transcript provided by NPR, Copyright NPR.