On March 29, 2013, the SEC charged Michael S. Steinberg (“Steinberg”), a portfolio manager at Sigma Capital Management, LLC (“Sigma Capital”), an unregistered investment adviser, with trading on material non-public information (“MNPI”) in respect of Dell, Inc. (“Dell”) and Nvidia Corporation (“Nvidia”). In addition, on March 15, 2013, the SEC announced that Sigma Capital had agreed to settle charges that it, a private fund it managed, and a private fund managed by an affiliate of Sigma Capital, engaged in, and were unjustly enriched by, trading on MNPI. According to the SEC’s press releases, the charges are part of an ongoing investigation into expert networks and the trading activities of hedge funds.
The SEC alleged that, in 2008 and 2009, Jon Horvath (“Horvath”), a former analyst for Sigma Capital, obtained MNPI regarding Dell’s quarterly earnings information and other performance data through communication with a group of hedge fund analysts that regularly shared MNPI. The SEC further alleged that in 2009 and 2010, Horvath obtained MNPI concerning Nvidia’s calculation of its revenues, gross profit margins and other financial information from the analyst group. According to the SEC, Horvath provided the MNPI regarding Dell and Nvidia to Steinberg and another portfolio manager of Sigma Capital, who executed illegal trades (and caused an adviser that was affiliated with Sigma Capital to execute illegal trades with respect to a private fund managed by such affiliated adviser) in advance of at least four quarterly earnings announcements of the companies, which resulted in more than $6 million in profits and avoided losses for the funds managed by Sigma Capital and its affiliated adviser.
The SEC charged Steinberg and Sigma Capital with violating Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. In settling, without admitting or denying the charges, Sigma Capital agreed to pay $6,425,000 in disgorgement, $1,094,161.92 in prejudgment interest and a civil penalty of $6,425,000, according to the SEC. According to the SEC’s press release, the SEC is seeking remedies against Steinberg that include disgorgement, prejudgment interest, financial penalties and permanent enjoinment from future violations of the relevant provisions of the federal securities laws. Further, according to the SEC, the U.S. Attorney’s Office for the Southern District of New York is pursuing criminal charges against Steinberg.