SAC Capital trader Michael Steinberg's conviction on multiple counts of criminal insider trading on Wednesday was a crushing blow. But in addition to the prison sentence he now faces, Steinberg could also be hit with millions of dollars in unexpected legal fees.
The reason: SAC founder Steve Cohen's legal policies, which insulate both investors and employees of his $13 billion hedge fund from most regulatory or litigation fees and penalties—unless an employee is found guilty of misconduct at trial. That means that Steinberg, who is represented by top defense litigator Barry Berke, could now be facing costs the legal experts estimate to be at least $10 million.
Officials at SAC Capital declined to comment on the details of the matter, as did a spokesman for Steinberg.
But in a meeting with portfolio managers within the last year or so, Cohen made his approach to employee legal expenses clear, according to someone was present: "the firm will support you unless you are found guilty." That viewpoint was reiterated at a subsequent meeting of SAC's stock traders shortly thereafter.
How Cohen's will play out in practice, however, isn't entirely clear. Under Delaware corporate law, which is the standard for many corporations, a company is obligated to provide employees with legal defense, say two lawyers familiar with the industry's practices, and typically, that support will last at least until a defendant's conviction is reiterated on appeal. That means that Steinberg, who is scheduled to be sentenced on April 25 and plans to appeal shortly after that, won't likely be on the hook immediately.
Moreover, Cohen may choose not to ask Steinberg for repayment, said one of these lawyers. Although a trial and appeal handled by an experienced Manhattan litigator could eventually run in to the tens of millions of dollars, the SAC founder has so far made a habit of covering regulatory fees, legal bills, and penalties, notes one of the lawyers.