The Morning Brief: Ex-SAC PM Steinberg Found Guilty of Insider Trading

Former SAC Capital Advisors portfolio manager Michael Steinberg was found guilty in the insider trading case against him. It is the government's first trial conviction of an SAC employee. Steinberg was convicted of four counts of securities fraud and one count of conspiracy stemming from trades in Dell Inc and Nvidia Corp. In the trial that began on November 20, the government alleged that SAC Capital made more than $1.4 million on these trades alone. In November SAC agreed to pay $1.2 billion and plead guilty to all five counts it was originally charged with. It earlier agreed to pay more than $600 million to settle civil charges with the Securities and Exchange Commission. Meanwhile, six of eight SAC employees who have been charged criminally have agreed to plead guilty to securities fraud.

"The jury has found what the Government contended from the outset; in search of an edge, Michael Steinberg crossed the line into criminal insider trading," said Preet Bharara, U.S. Attorney for the Southern District of New York, in a statement. "Like many other traders before him who, blinded by profits, lost their sense of right and wrong, Steinberg now stands convicted of federal crimes and faces the prospect of losing his liberty."

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New York-based hedge fund firm Clinton Group raised its stake in teen apparel retailer Wet Seal to 8.1 percent. In addition, Clinton said in a regulatory filing that it is exploring financing alternatives so it can offer to buy the company and take it private. Since 2012 it has been pushing for the company to put itself up for sale. The stock has nearly halved since July 1 due to revenue declines in seven of its past eight quarters and a recent warning from the company that same-store sales would decline in the fourth quarter. "The notion that the business is worth half of what it was worth in July because all the teenage retailers had a crummy back-to-school is crazy to us," Clinton Group president Greg Taxin told Bloomberg. "We're happy to pay a market premium to this number for sure."
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Shares of Herbalife surged another 3 percent to close at a new all-time high of $77.98. Earlier this week it got a clean bill of accounting health from its new auditor, PricewaterhouseCoopers (PwC). Even so, Pershing Square Capital Management's William Ackman made it clear he is still committed to his controversial high profile short position in the multi-level marketer of nutrition products. His expectation that the Federal Trade Commission will rein in Herbalife's business practices better materialize soon if the stock keeps climbing.
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Shares of another high profile short position, Green Mountain Coffee Roasters, closed at $76.16, its highest price since the first week of October. David Einhorn's Greenlight Capital has a major negative bet against the stock.
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More investors put money into hedge funds than took money out in November, the fifth straight month of net inflows, according to industry tracker eVestment. As a result, industry-wide assets rose to a five-year high of $2.84 trillion. Industry-wide assets now lag their pre-financial crisis peak by just over 3 percent, according to eVestment. Not surprisingly, equity strategies took in the majority of new assets ($10.5 billion) in November. In fact, inflows into long-short equity funds in November were the largest in more than four years, since August 2009. On the other hand, eVestment found that investor sentiment towards credit strategies declined.
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Steve Cohen's SAC Capital Advisors disclosed it owns a 5.2 percent passive stake in Trulia, an online real estate company. Earlier this week we reported that Kenneth Griffin's Citadel disclosed a 6.5 percent passive stake in Trulia. The stock closed Wednesday at $30.76, down from its all-time high of $51.68 three months ago.