A man who worked as a lieutenant to one of the most famous hedge-fund managers in the world is about to learn whether his future involves a prison cell.
Michael Steinberg, a portfolio manager at SAC Capital Advisors LP, is facing charges of illegal insider trading in a closely watched trial that has shed new light on the aggressive pursuit of information by the hedge fund.
On Monday, lawyers for the prosecution and the defence presented their closing arguments to a packed courtroom in downtown Manhattan. Mr. Steinberg, 41, in a dark grey suit and blue tie, listened impassively as the two sides presented starkly different accounts of his past conduct.
For more than a decade, Mr. Steinberg has worked at SAC Capital, the hedge fund founded by billionaire Steven Cohen. The firm recently pleaded guilty to criminal charges of insider trading and agreed to pay a penalty of $1.2-billion (U.S.).
Eight SAC employees have faced insider-trading charges; Mr. Steinberg is the highest-ranking figure among them and the first to take his case to trial. Six have pleaded guilty.
Mr. Steinberg’s case represents a fresh test for U.S. federal prosecutors, who have mounted an unprecedented crackdown on insider trading. Unlike in other recent jury trials involving similar allegations, there are no wiretap recordings implicating Mr. Steinberg. Instead, the charges against him rest heavily on the testimony of one of his former subordinates.
U.S. prosecutors accuse Mr. Steinberg of using confidential information to reap $1.4-million in illegal profits from trades in Dell Inc. and Nvidia Corp. in 2008 and 2009. They zeroed in on e-mails they claimed were evidence that Mr. Steinberg knew that the information he was using was illegally obtained, including one where he told a colleague to “be discreet,” saying “normally we would never divulge data like this.”
The star witness for the prosecution was Jon Horvath, a former SAC technology analyst who worked for Mr. Steinberg. Mr. Horvath earlier pleaded guilty to insider trading and agreed to help the government in order to mitigate his sentence.
In Mr. Steinberg’s month-long trial, Mr. Horvath spent about two weeks on the stand. He testified that he passed along tips he obtained illegally from a chain of contacts that led back to employees of Dell and Nvidia, who shared confidential information about impending earnings reports.
Mr. Horvath also testified that during a business trip to Arizona, Mr. Steinberg approached him to discuss what to say to federal agents if they questioned him about the trade involving Dell.
On Monday, Barry Berke, Mr. Steinberg’s lawyer, portrayed Mr. Horvath as an unreliable witness whose only priority was to secure a lesser punishment. Mr. Berke highlighted testimony in which Mr. Horvath said that he never explicitly informed Mr. Steinberg that the information was illegally obtained.
“The evidence doesn’t even come close” to proving Mr. Steinberg’s guilt, said Mr. Berke, describing Mr. Horvath as a “walking, talking [source of] reasonable doubt.”
At times, the trial touched on Mr. Cohen, SAC’s founder. At SAC, traders were rewarded for passing along their best ideas to the firm’s chief. In August, 2008, Mr. Horvath and Mr. Steinberg shared their belief with Mr. Cohen that Dell was about to report disappointing results – a belief, Mr. Horvath testified, that had its basis in confidential information. Mr. Cohen sold his holdings of Dell stock as a result, prosecutors said, sidestepping millions of dollars in losses.
Mr. Cohen has not been accused of any wrongdoing. A spokesman for SAC did not respond to a request for comment about Mr. Steinberg’s trial. Earlier this year, when Mr. Steinberg was arrested, the firm said in a statement that “Mike has conducted himself professionally and ethically during his long tenure at the firm. We believe him to be a man of integrity.”