By Nate Raymond and Joseph Ax
NEW YORK Dec 18 Michael Steinberg, a top
portfolio manager at Steven A. Cohen's SAC Capital Advisors
hedge fund, was found guilty on Wednesday on charges that he
traded on insider information.
A federal jury in Manhattan found Steinberg, 41, guilty on
all five counts of conspiracy and securities fraud that he
faced. Prosecutors said he traded on confidential information
that was passed to him by a fellow employee, who later admitted
to swapping illegal tips with friends at other firms.
The verdict, delivered in the fifth week of his trial, was
the latest victory for federal prosecutors in New York in their
four-year crackdown on Wall Street insider trading that has
resulted in convictions of 77 people and no trial losses.
"A lot of people were watching this one," said Stephen
Crimmins, a lawyer at the law firm K&L Gates. "To lose a case
with this high a profile would have been an embarrassment."
Steinberg closed his eyes and put his head back when the
first guilty finding was read. Friends and family sitting behind
him gasped and held each other, with some covering their mouths
and others crying.
The verdict, reached after a day and a half of
deliberations, was delayed slightly when Steinberg fainted as it
was about to be read. Jurors left the courtroom while he
received medical attention and then returned.
Steinberg will be sentenced on April 25, the judge said. A
spokesman for Steinberg said he would not have any comment.
Jurors declined to comment as they left the courthouse. The
nine women and three men hearing the case included two
accountants, a retired postal worker, and a receptionist. The
forewoman was a licensed massage therapist.
The verdict came a month after SAC Capital agreed to pay
$1.2 billion and plead guilty to fraud charges stemming from a
long-running probe of insider trading at Cohen's hedge fund.
"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," Manhattan U.S. Attorney Preet Bharara said.
DYNAMIC CHANGED IN UPCOMING CASE
Steinberg, who worked in SAC's Sigma Capital Management
division, was one of eight employees at SAC to face criminal
charges for insider trading and the first of two to fight them
A former SAC portfolio manager, Mathew Martoma, is scheduled
to face trial Jan. 6.
Crimmins, the lawyer at K&L Gates, said Martoma may now wish
to review his own decision to go to trial. "The government's win
in Steinberg does change the dynamic for Martoma," he said. "If
Martoma is offered a deal he can live with, he has to think long
and hard about it."
Six others have pleaded guilty to charges relating to
insider trading, including Jon Horvath, an SAC analyst who
prosecutors said supplied Steinberg with nonpublic information
about companies, including Dell Inc and Nvidia Corp.
Horvath, who cooperated with the government in hopes of
avoiding jail time, became a star witness in the case against
Steinberg, testifying over the course of nine days how his boss
pushed him to get "edgy, proprietary" information.
Horvath, 44, was part of what prosecutors called a "corrupt
circle" of research analysts who cultivated insider information
and shared it with each other in order to make trading
recommendations to their bosses.
Steinberg's lawyer, Barry Berke, sought throughout the trial
to call Horvath's credibility into question, saying on Monday
that he chose to "point the finger" at Steinberg only on the eve
of his own trial and in a bid to avoid prison.
"The prosecution accepted what he told them hook, line and
sinker," Berke said in closing arguments on Monday.
Prosecutors said the tips at issue in the case flowed
through many hands before Steinberg placed any trades.
Sandeep Goyal, a former analyst at Neuberger Berman,
testified to receiving information about Dell Inc's finances
from Rob Ray, a friend working in Dell's investor relations
Goyal testified he then shared the information with Jesse
Tortora, who at the time was an analyst at the hedge fund
Diamondback Capital Management.
Tortora, who also testified in Steinberg's trial, said he
shared the Dell tips with other analysts including Horvath.
Horvath said he passed details to Steinberg "for purposes of
trading on the information."
Among the trades prosecutors focused on were ones Steinberg
made ahead of Dell's earnings report on Aug. 28, 2008. Based on
a tip that Dell's gross margins would disappoint Wall Street,
prosecutors say, Steinberg began shorting the computer company's
stock, netting $1 million on the trades.
Tips on Nvidia likewise passed through several
individuals before reaching Steinberg, prosecutors said.
Hyung Lim, a former marketing executive at Altera Corp
and Broadcom Corp, testified to giving tips
about his employers to an occasional poker friend, Danny Kuo,
who went on to work as an analyst at Whittier Trust Co.
After Kuo asked him if he knew anyone at Nvidia, Lim said he
began getting tips from Chris Choi, a friend from his church who
worked in Nvidia's accounting unit.
Horvath testified to receiving the information from Kuo,
which he then shared with Steinberg. Based on advanced
information that Nvidia's gross margins would disappoint Wall
Street, Steinberg placed bets ahead of a May 7, 2009, earnings
announcement that netted the hedge fund more than $400,000,
Beyond Steinberg's own trades, the case spotlighted Cohen's
trading activities. Days before Dell's August 2008 earnings,
Horvath testified that he and Steinberg discovered Cohen was
betting the company's stock price would go up based on another
After Dell's results were announced, Cohen congratulated
Steinberg's team. "Nice job on dell," Cohen wrote in an email.
Pre-trial filings show that Cohen avoided $3.5 million in losses
on Dell after an email from Horvath about Dell was forwarded to
A spokesman for SAC Capital declined to comment.
The case is U.S. v. Steinberg, U.S. District Court, Southern
District of New York, No. 12-cr-00121.