This afternoon Michael Steinberg, a former SAC portfolio manager who was convicted of insider trading last year, was sentenced by U.S. District Court Judge Richard J. Sullivan to 42 months in prison. Judge Sullivan also “ordered Steinberg to pay a $2 million fine and forfeit the more than $365,000 in compensation he gained from the illegal trading. But [he did] allow Steinberg to remain free on bail pending appeal.” Kevin McCoy, Ex-SAC Capital Trader Gets Prison Sentence, USA Today, at http://www.usatoday.com/story/money/business/2014/05/16/michael-steinberg-sentencing/9091093/.
The government had argued that a sentence within the advisory Guidelines range of 63 to 78 months was “sufficient, but not greater than necessary, to comply with the purposes” of sentencing. 18 U.S.C. § 3553(a). As recently reported by the New York Times, this requested sentence was “greater than the prison sentences meted out to 50 other former traders and analysts who have either pleaded guilty or were convicted at trial in the federal government’s … six-year crackdown on insider trading in the hedge fund industry.” But the government argued that “hedge fund managers, like Steinberg, who sought to insulate themselves from liability by using their analysts to obtain the illegal information, profited the most from the criminal scheme[,] … earn[ing] millions of dollars for their hedge funds and personally profited by receiving enormous bonuses as a result.” United States v. Steinberg, S4 12-CR-121 (RJS), Doc. 383, Gov’t Sentencing Memo. at 32 (May 9, 2014). Such behavior, argued the government, warranted a long prison term.
Steinberg’s counsel had argued in response that a sentence of no more than 24 months in prison would sufficiently achieve the purposes of sentencing. Steinberg’s dedication and support to his family, devotion to charity, altruism and generosity, limited role in the conspiracy, and lack of knowledge (he was at least four steps removed from the tipper) warranted this substantially reduced, below-Guidelines sentence. See United States v. Steinberg, S4 12-CR-121 (RJS), Doc. No. 380, Sentencing Memo. on behalf of Michael Steinberg (May 2, 2014); Doc. 385, Letter from Barry H. Berke to the Honorable Richard J. Sullivan, at 1 (May 14, 2014).
According to reports, Judge Sullivan agreed with some of Steinberg’s arguments. His decision to vary downwards by 21 months was motivated by the fact that Steinberg’s crimes constituted a marked deviation in what has otherwise been a “very good” life and by “mov[ing] … letters from family members.”
While Steinberg received a significant variance from “a judge who has imposed some of the longest sentences on insider traders,” his 3 ½ year sentence is representative of the marked increase in insider trading sentences as of late. According to an analysis by the Wall Street Journal, defendants convicted of insider trading received a median sentence of 2 ½ years in the two years preceding the October 2011 sentencing of Raj Rajaratnam (who is currently serving an 11 year jail sentence), compared to a median sentence of 1 ½ years over the preceding decade and just 11 ½ months from 1993 to 1999. This increase in the length of sentences comes in large part from the emphasis the Guidelines place on the amount of gains and losses – a fact that has been criticized by numerous judges,including Judge Sullivan’s colleague Judge Jed S. Rakoff.
Despite today’s result, Steinberg may still hold out hope for a successful appeal. It is anticipated that Steinberg’s counsel will raise a legal challenge similar to the one raised last month by Todd Newman and Anthony Chiasson before the Second Circuit – namely that, as a tippee, Steinberg needed to know that the tipper provided inside information for a personal benefit. As reported by White Collar Alert, the appellate panel appeared to push back strongly against the government’s contention that establishing that the information was provided in violation of a duty of confidentiality is sufficient. Stay tuned for further updates from White Collar Alert.