Judge Finds Steinhardt Traded On Confidential Info.

Jan 11 2012 | 11:23am ET

Hedge fund pioneer Michael Steinhardt has been rapped for insider-trading, and ordered to report himself to the proper authorities.

A Delaware Chancery Court judge last week found that Steinhardt improperly shorted shares of broadband communications company Calix while he was privy to confidential information about the company stemming from a lawsuit the he filed with a former protégé. Vice Chancellor J. Travis Laster ordered him to disgorge $534,071 in ill-gotten gains—and to report himself to the Securities and Exchange Commission.

At issue is Steinhardt's Calix short sales in December 2010. Steinhardt and former Steinhardt Partners trader Herbert Chen had sued Occam Networks, which had agreed to sell itself to Calix. That December, Laster issued a confidentiality order restricting trading in Calix and Occam shares, and Chen received a cache of confidential documents, which he reviewed. According to Laster, Steinhardt was receiving weekly updates from Chen and knew "there was a very high probability of that merger occurring," despite his objections.

Steinhardt has denied that he received any material information from Chen.

"By serving as representative plaintiffs, Steinhardt and the funds gained access to real-time insights informed by confidential discovery material and counsel's litigation assessments," Laster wrote. "Based in part on this information, Steinhardt and the funds decided to abandon their challenge to the merger and exit their Occam position in a manner designed to capture the arbitrage spread between Occam and Calix."


In Depth

Dillon Eustace: The Advantages of ICAVs

Feb 11 2016 | 7:51pm ET

As the growth of alternative investment vehicles continues, global asset managers...

Lifestyle

Citadel's Ken Griffin Donates $40M To New York's Museum of Modern Art

Dec 22 2015 | 9:23pm ET

Citadel founder Ken Griffin has donated $40 million to New York’s Museum of Modern...

Guest Contributor

Hedging Against Reputational Risk in the 21st Century

Feb 12 2016 | 7:18pm ET

For investors, the first step in researching a new fund or manager is to google...