The subpoenas are mounting in the Justice Department's growing insider-trading investigation, as is the evidence that SAC Capital Advisors is among the probe's chief targets.
The Feds have delivered more than a dozen new subpoenas in the two weeks since the Federal Bureau of Investigation raided the offices of three hedge funds. According to Reuters, the new information requests focus on the use of expert networks.
Dozens of hedge funds have already been subpoenaed as part of the three-year-long investigation, among them Jana Partners and TPG-Axon Capital Management. In recent weeks, the ranks of the subpoenaed grew to include SAC Capital Advisors, Citadel Investment Group and Balyasny Asset Management.
It is unclear who received the new subpoenas, but the U.S. Attorney's office in New York had not sent the requests to all of the clients of Broadband Research, one of the expert-network providers at the center of the case. Broadband founder John Kinnucan made something of a name for himself when he refused to wear a wire for the FBI in conversations with a SAC Capital Advisors employee and then told all of his clients about the approach.
Among those clients are Citadel, SAC, Maverick Capital, Coatue Management, Manatuck Hill Partners, Alkeon Capital, Sonar Capital Management and Platte River Capital.
Kinnucan is among those who has received a subpoena, he said. He is also one of the many pieces of the puzzle pointing towards SAC. While Kinnucan has refused to identify the SAC employee whose conversations the FBI wanted him to record, The Wall Street Journal reports that it is portfolio manager Michael Steinberg, who focuses on technology investments—one of the sectors the Feds are looking at closely—at its Sigma Capital Management unit.
Neither Steinberg nor SAC have been accused of any wrongdoing. But one of Steinberg's former bosses at Sigma, Richard Grodin, is among those subpoenaed in the probe last year.
The FBI's failure to win Kinnucan's cooperation came after one person who did cooperate attempted to win his way back into SAC—at the government's request—and failed.
According to the Journal, Richard Choo-Beng Lee, who pleaded guilty as part of the Galleon Group insider-trading case, tried to get a job at SAC after he began cooperating with the authorities. But SAC founder Steven Cohen was reportedly suspicious about his former employee's motives and refused to hire him.
As part of Lee's plea agreement, he agreed to provide information about SAC's activities. He also admitted that his insider trading began while he worked at SAC.
Lee is not only a key connection between the current insider-trading probe and the Galleon case, but also the chief link to the only person arrested as part of the current investigation, Don Ching Trung Chu. Chu, who worked at one of the expert network providers being looked at, Primary Global Research, has been charged with passing confidential tips about three technology companies to Lee.
What's more, federal prosecutors last week offered more details about alleged insider trading by Jonathan Hollander, a former analyst at SAC's CR Intrinsic unit. CR is known to have traded some of the healthcare securities that the wide insider-trading probe is looking into.
According to a letter to a federal judge from prosecutors, Hollander was one of "four personal friends" of Nicos Stephanou who received "inside information" from the former UBS banker. Stephanou pleaded guilty to insider-trading and testified against former Jefferies Group hedge fund manager Joseph Contorinis, who was convicted in October. In the letter, prosecutors said that Hollander "traded in his personal account and the hedge fund where Hollander worked also traded," although Hollander has not been formally accused of any wrongoing.
Hollander is said to have received those tips from Stephanou from 2004 through 2006, all years at which he worked at SAC.