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‘I Felt I Was Innocent’ – Former SAC Trader Explains How He Got His Insider Trading Conviction Thrown Out

Courtesy of ZeroHedge View original post here.

If somebody were to write a history of white collar crime on Wall Street, they would need to devote at least one chapter to SAC Capital, and the golden days of insider trading in the hedge-fund world, where firms like SAC routinely posted world-beating returns thanks to the endless flow of material non-public information passing to its traders from an army of analysts, executives, consultants, researchers, etc.

It was just over a decade ago that then-US attorney Preet Bharara decided to start a war by going after Cohen, starting a legal fight that lasted for for years, culminating with Cohen's decision to accept a temporary ban from managing outside money, and the conversion of SAC into a family office.

Now, Cohen is back with a new firm (they're about to wrap up their first year of managing outside money, and the Street will no doubt be curious to see those returns). And Bharara is settling into a new career as a podcast host after being unceremoniously fired by President Trump back in 2017.

Richard Lee

The crackdown on SAC never touched Cohen. But some of his former employees really took it on the chin. Matthew Martoma, one former SAC trader believed to have extracted the largest insider-trading payout in history, is still in prison. But six months ago, a federal judge in Manhattan vacated the guilty plea of former SAC trader Richard Lee in Bharara's insider-trading case. That was a huge blow to the case's legacy: Lee was one of the first guilty pleas, and a crucial government witness.

Now, in his first interview since his guilty plea was vacated, Lee opened up to Bloomberg about why he thinks he was railroaded by Bharara, and insisted that, even though his lawyers convinced him to plead guilty, he always believed in his innocence.

Of course, the reversal of Lee's plea was made possible by two things: New case law that raised the bar for prosecutors in insider trading cases, and the emergence of new evidence which seriously undermined the government's case against Lee.

Lee said he agreed to the interview because he wants to explain to the public why he truly believes he never did anything wrong, and that he started asking his lawyers about how he could reverse his guilty plea almost from the minute that he made it official.

"Most people don’t understand," said Lee, 40. "Why would anyone plead guilty to something that they hadn’t done?"

Lee insisted that when he was firs approached by FBI agents on the street and asked about the alleged insider trades, he had no recollection of the trades that the agents were talking about. And that shouldn't be a surprise, he said: He made those trades more than four years prior. How many people remember what they did on a given workday four years ago?

"There’s a misconception that portfolio managers and analysts and trading professionals remember every single trade that they did, regardless of whether it is completely lawful, in the gray area or illegal," said Greg Morvillo, Lee’s lawyer. "You’re talking about four, four and a half years later. It’s very hard to remember the details of how a day evolved."

The guilty plea was ultimately tied to trades in Yahoo back in 2009. Prosecutors alleged that Lee made the trades with input from an analyst who told him that a rumored alliance between Microsoft and Yahoo to develop a search-engine rival to Google would be announced in the coming weeks.

Lee said he traded Yahoo frequently at the time. And the evidence that eventually exonerated him found that he had purchased the bulk of his Yahoo shares that day before speaking to the analyst who allegedly passed him the insider info. 

Still, Lee feared many would simply assume he was in denial when he protested about his innocence.

Lee said he moved in and out of Yahoo almost constantly in 2009, both before and after the Microsoft partnership. He said he didn’t remember his July 10 trades when he was approached on the street in Chicago by two FBI agents four years later, and he doesn’t remember them now. But he’s certain no one would have believed that.

"I felt very deeply that I had not committed insider trading," said Lee, "but I couldn’t assert that to people because I knew I would just come across like somebody who was actually guilty of it but in denial."

Ahead of his guilty plea, Lee's lawyer pushed his client to swiftly plead guilty and strike a deal to cooperate with prosecutors.

Lee said Richard Owens, his lawyer at the time, advised against that, saying the former portfolio manager’s cooperation could help him avoid prison, where many convicted in the crackdown ended up. Owens declined to comment.

Two days after pleading guilty, Lee found himself cited by then-Manhattan U.S. Attorney Preet Bharara in his announcement of his big case against SAC. Bharara said Lee was part of a group that made SAC a "magnet for market cheaters."

"I was at home watching it on TV," Lee said. "It was surreal."

But after the appeals court ruling in 2014 that moved the goalposts for prosecutors in insider trading cases, Lee decided to seek a second opinion.

After that ruling, Lee decided to get a second opinion on his case. A minister who works with white-collar defendants introduced him to Morvillo, who represented one of the fund managers in the 2014 appeals court case.

But Lee’s new lawyer said there wasn’t an immediate way around the guilty plea. The problem, Morvillo said, was that Lee never got to see most of the government’s evidence against him because he pleaded guilty so quickly. It was only in May 2017, after the government provided documents so that Lee could prepare for sentencing, that they saw an instant message Lee sent Cohen the day of the Yahoo trade.

And now, Lee has his life back.

It was tough focusing on a career as the legal fight dragged on. “At times I felt very guilty because I just didn’t feel like I was mentally present,” he said. “I was in my head much of the time."

But he doesn’t think he deserves anyone’s pity. “I have a family, fine friends. Everyone has a hard life. This is mine,” Lee said.

Certainly, we applaud Lee for clearing his name. But we have a question that Bloomberg apparently didn't touch on during its interview: What happened to those whom Lee provided evidence against? After all, he admits to cooperating with prosecutors to lessen his sentence and avoid jail. Will any of them see their convictions reduced or thrown out?

 


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