Thursday, March 16, 2017
Don’t forget Preet Bharara’s victims
On Saturday afternoon, Preet Bharara, the US attorney for the Southern District of New York and the most celebrated federal prosecutor since Rudolph Giuliani held the same post three decades earlier, was fired by President Trump.
Some 48 hours later, Michael Steinberg, a former top trader with Steven Cohen’s hedge fund, then known as SAC Capital Advisors, is ready to disclose his next act: an early-stage venture capital fund called Reciprocal Ventures, which will focus on fintech (i.e., financial technology) startups. The coincidence is almost too perfect.
In 2013, the US attorney’s office charged Steinberg with insider trading, one of several indictments that were aimed at bringing down Cohen, who was Bharara’s Great White Whale. The next year, Steinberg was convicted and sentenced to three years in prison by Federal District Court Judge Robert Sullivan, who, at the sentencing hearing, nonetheless described Steinberg, then 42, as “a good man.”
In October 2015, however, Bharara was forced to drop the charges against Steinberg after the US Court of Appeals for the Second Circuit reversed the conviction of two other hedge-fund managers, Todd Newman and Anthony Chiasson, who were convicted, before the same judge, on essentially the same set of facts. The appeals court ruled that both Sullivan and Bharara had stretched the insider-trading laws beyond recognition, and that the means by which the hedge-fund managers received market-sensitive information did not amount to insider trading. Subsequently, Bharara reversed the conviction of Steinberg and dropped the guilty pleas of six cooperating witnesses.
It’s worth noting as Bharara leaves office that his desire to nail Cohen — whom he was never able to indict — caused him to overreach, shutting down firms (though not Cohen’s, which is now called Point 72 Asset Management), throwing innocent people out of work and harming individuals like Steinberg, who simply wasn’t guilty of insider trading as the law defines that crime.
It’s also worth noting that Bharara’s office also didn’t indict a single top Wall Street executive in the wake of the financial crisis.
On the plus side, he did a magnificent job prosecuting a genuinely criminal insider-trading ring, the one that centered around the hedge-fund manager Raj Rajaratnam, and he also did fine work rooting out corrupt politicians. Indeed, in another tweet this weekend, he implied that he was investigating Trump when he was fired.
In the aftermath of Bharara’s firing, you’re likely to see him showered in encomiums, especially by the anti-Trumpsters, but remember, his record is mixed. Rare is the prosecutor who is a candidate for sainthood.
There are those who would argue, I suppose, that Steinberg was no saint either; during his trial, one of his former underlings testified that he wanted “edgy, proprietary information that we can make money in these stocks.”
But I find the Second Circuit’s forceful rebuke of the government’s case persuasive, and in any case, with Bharara fired, with Cohen preparing to open his hedge fund to outside money — he’ll be able to do so in 2018 — and with Steinberg about to become a venture capitalist, it would appear everyone is moving on.
Steinberg certainly is. When I met up with him a few weeks ago, he told me that he had a partner, Josh Kuzon, the former senior payments strategist at Silicon Valley Bank, and was about to bring a third person into the firm. Although he wouldn’t discuss fundraising, the word on the street is that the fund will start with around $60 million.
Inevitably, I asked Steinberg about his ordeal with the US attorney’s office. Not surprisingly, it wasn’t something he especially wanted to talk about. “It was hard,” he said. “It was gut-wrenching.” One thing that made it hard was that he has small children, and he felt it was important to tell them what was going on: “That they knew we were standing up for what we believed in.”
Another difficulty is that hedge-fund managers are used to being in control of their own fate, and that is precisely what is taken away when you are under investigation or indictment.
Before I left, I asked Steinberg if he still spoke with Cohen, who paid his legal bills. He smiled wanly and let out a small sigh. “Steve and I stay in touch,” is all he would say.
With Reciprocal Ventures, Michael Steinberg is moving on.