Wednesday, 1 October 2014
Last updated 12 min ago
Nov 26 2013 | 11:16am ET
It seems that, without the benefit of material, non-public information, former hedge fund analyst Jesse Tortora wasn't much of a stock-picker at all.
Tortora, testifying in the insider-trading trial of SAC Capital Advisors portfolio manager Michael Steinberg yesterday, told the jury that he earned a $2 million bonus the year he passed a key tip on Dell Inc. to Steinberg's analyst, Jon Horvath. But when he tried investing the money himself, he lost hundreds of thousands of dollars.
"I spent money a bit excessively," Tortora said. "I lost a lot of money doing two things, by day trading, which I lost about $400,000, and several other hundred thousand dollars by gambling in Vegas," something else he was apparently no good at.
All told, Tortora said he earned about $3.4 million during his three-and-a-half years at Diamondback Capital Management.
Tortora is testifying as a cooperating witness, one whom prosecutors say was a key conduit in the pipeline of information from corporate insiders to hedge fund managers like Steinberg and Tortora's own former boss, Todd Newman, whom Tortora also testified against and who was convicted, receiving a four-and-a-half year prison sentence. Tortora has pleaded guilty in the case.
Tortora said the group joked about being like the group from the 1999 film "Fight Club." In one 2009 e-mail introducing a new member of the group, Tortora parodied the film's famous motto.
"Rule number one about email list, there is no email list," Tortora wrote. "Rule number two, only data points can be sent, no sarcastic comments. Enjoy. Your perf will go up by 100% in 2009 and your boss will love you."
One key difference between "Fight Club" and the insider-trading ring, Tortora said, was secrecy: "It was shared with our portfolio managers," he said. "At times the e-mail list would be forwarded from someone in the group to a portfolio manager. I would do that."
"I told Jon I was passing or passed information to Todd Newman and he in turn told me he was communicating that information to Mike Steinberg," Tortora testified. "He told me he directly worked for Mike Steinberg and that Mike had status at SAC. He told me that Mike was 'Steve Cohen's right-hand man.'"
Prosecutors said that Steinberg was one of four portfolio managers to receive insider information from the group, which included seven analysts, four of whom are expected to testify against Steinberg. One who will not is Ron Dennis, a former SAC analyst and the only one of the seven not to face criminal charges.
One of the most profitable moments for Steinberg came in 2008, when Tortora warned him that he had gotten a tip from another member of the circle, Sandeep Goyal, that Dell Inc. was going to miss its earnings estimates. SAC at the time had a long position in the computer maker.
After an 11-minute conversation with Tortora, Horvath called Steinberg and spoke to him for three minutes. Immediately afterward, Steinberg began to build a short position in Dell, prosecutors said.
Two days later—after Dell announced its earnings—Horvath set a message to Tortora: "Nice Man!!!!! You nailed it!!!"
Sep 22 2014 | 4:15pm ET
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Sep 30 2014 | 9:29am ET
The crisp Autumnal days of October are upon us, and so are a few of the hedge fund industry’s favorite charitable events. If you have never been to Rocktoberfest, well, you are missing out. And for a quieter evening of sipping and socializing, stop by HFC’s Wine Soiree. Read more…
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