The well publicized death earlier this week of the boxer Hurricane Carter, who served 19 years in prison before the triple murder charges on which he had been wrongfully convicted were dismissed, got me thinking about Michael Steinberg.
Steinberg is the fund manager at SAC Capital Advisers LP, part of the Connecticut hedge fund led by Steven A. Cohen, who was convicted in December after a prosecution led by the U.S. attorney for the Southern District of New York, Preet Bharara. This site covered our doubts about the conviction and the prosecution in an earlier post here.
An update is in order on account of yesterday's hearing by a panel of three judges who ride the Second Circuit of the U.S. Court of Appeals: Barrington Parker, Ralph Winter, and Peter Hall. A front page account by the New York Times, of the hearing, which did not involve Mr. Steinberg directly but a similar case, reported "the appellate panel implied that Mr. Bharara's office had steered some insider trading trials to Judge Richard J. Sullivan, a lower-court judge in Manhattan." In addition to the matter of judge-shopping, the hearing yesterday focused on problems with Judge Sullivan's instructions to the jury, instructions that were similarly flawed in the Steinberg case.
If Judge Sullivan had trouble coming up with the right instructions, one can understand why. "Insider trading" is ill-defined. To this day, those seeking a definition on the Securities and Exchange Commission Web site are referred to a 14-page speech given in 1998 by an SEC official who is now in private practice representing companies and executives who are investigated by the SEC. The speech, which has 81 footnotes, is useful mainly for understanding how the definition of the crime has shifted over time based on things like "Dirks footnote 14." It's all useful to provide work for former prosecutors and former SEC officials, but it's not terribly useful or clear to those such as Steinberg, who are not "insiders" in the sense of being directors or officers of publicly traded companies.
Back in the late 1980s, when another politically ambitious U.S. attorney in Manhattan, Rudolph Giuliani, went overboard prosecuting so-called insider trading, there was a concerted effort to push back, led by the Wall Street Journal editorial page. This time around, there is less protest, which brings us back to Hurricane Carter. A wealthy hedge fund manager and a black defendant accused of a violent crime are two different things, but there is a resemblance in how the insider trading cases are seen, at least in public, as part of a broader "Occupy Wall Street" backlash against income inequality and against the financial industry after the 2008 economic downturn. The defendants aren't seen as individuals but as representatives as a group. If you doubt this, go look at the reader comments on the New York Times article, which include gems such as "all of Wall Street brokerage firms, along with banks are nothing more than well-dressed criminals."
It's a phenomenon that poses a danger to justice and to the rights of individuals no matter whether the targeted group is muscular black men from poor neighborhoods or wealthy hedge fund managers from Connecticut or the Upper East Side. Let's hope that in Steinberg's case, the justice system comes to its senses faster than the 19 years it took for Hurricane Carter to be freed.