SAC’s Steinberg claims judge-shopping but loses bid for reassignment

May 15, 2013

For defense lawyers, it’s always a calculated risk to intimate that the judge presiding over your client’s case may not be entirely impartial. Whether you make that suggestion in a recusal motion or, in very extreme circumstances, in a mandamus petition, you’re implicitly acknowledging that your client has little or nothing to lose by challenging the trial court’s judgment (and inevitably irritating the judge).

Michael Steinberg of SAC Capital is facing a Nov. 18 trial on federal fraud and conspiracy charges stemming from his supposed insider trading in Dell and Nvidia shares. That trial will take place before U.S. District JudgeRichard Sullivan of Manhattan, despite the best efforts of Steinberg’s lawyers at Kramer Levin Naftalis & Frankel.

Lead defense counsel Barry Berke of Kramer Levin hedged the risk of offending Sullivan by framing his letter request for reassignment to a new judge as an accusation of prosecutorial judge-shopping. In a nine-page letter to Sullivan and Chief Judge Loretta Preska, Berke asserted that the government improperly brought its case against Steinberg as a superseding indictment even though the previously indicted insider trading defendants in the case had already pleaded guilty or been convicted at trial. Prosecutors’ motive, according to the letter, was to proceed before Sullivan, who has sided with the government’s argument that it need not prove a tippee was aware the tipper stood to benefit from passing inside information. Two other judges in the Southern District of New York have instructed juries otherwise on this issue, which Kramer Levin said is central to the Steinberg case because the hedge fund manager “is at least four steps removed from the alleged tippers in the two stocks specifically charged in the indictment.”

The defense letter, written on April 2 but entered in the docket on May 3, claimed that the government’s supposed indictment gamesmanship “violates the letter and spirit of the district’s rules, due process and basic fairness, and creates the appearance of impropriety.”

Assistant U.S. Attorneys Antonia Apps and John Zach replied in their own seven-page letter, asserting that Steinberg doesn’t have standing to challenge judicial assignments, which are a matter of local court rules, and that the government’s use of a superseding indictment was routine and proper. Prosecutors also said that the entire premise of Kramer Levin’s theory – that the government angled to receive the benefit of Sullivan’s ruling on tippee liability – is unfounded because that issue is for the 2nd Circuit Court of Appeals to decide.

The New York Council of Defense Lawyers took Kramer Levin’s argument seriously enough that it sent a letter in support to Judges Sullivan and Preska. The government’s unilateral power to decide unilaterally whether to proceed via a superseding indictment, which entitles them to assignment before a particular judge, or via a new case that’s randomly assigned “creates at least an appearance of impropriety,” the letter said. “At its worst, the practice can smack of judge shopping.”

Sullivan was not persuaded. Though he said at a hearing on May 3 that he had discussed the matter with Preska, he denied Kramer Levin’s request to reassign the case to a randomly selected judge. “So you’re stuck with me, Mr. Steinberg,” the judge said. Was the gambit worth the risk to Steinberg? Neither defense lawyer Berke nor a representative of the U.S. Attorney’s office would comment, but Steinberg gained one small concession: Judge Sullivan promised he’d get a fair trial.

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