The star witness in the federal government’s insider trading prosecution of Michael Steinberg, once a senior trader at SAC Capital Advisors, told a federal jury on Tuesday why he was cooperating with prosecutors and testifying at the trial.
“I hope to avoid jail time,†said the witness, Jon Horvath, who worked for five years as a technology stock analyst at SAC, where Mr. Steinberg was his boss. Mr. Horvath pleaded guilty to insider trading charges in September 2012 and agreed to help prosecutors in the investigation that led to Mr. Steinberg’s indictment this spring.
Mr. Steinberg’s trial comes on the heels of SAC Capital’s guilty plea on Nov. 8 to securities fraud charges and its agreement to pay $1.2 billion in fines and restitution to federal prosecutors, in addition to a penalty of more than $600 million the firm agreed to pay to the Securities and Exchange Commission this year. Judge Laura Taylor Swain of Federal District Court is reviewing the firm’s guilty plea and has deferred a decision on whether to accept it. The firm’s founder, Steven A. Cohen, has not been charged.
Mr. Horvath, who took the stand late in the day on Tuesday, did not get far into his testimony before court was adjourned for the day by Judge Richard Sullivan of Federal District Court. But prosecutors set the stage by going over his career background and getting Mr. Horvath to divulge some negative information about his childhood in Canada.
Mr. Horvath, who was born in Sweden but grew up in Canada, testified that he did not disclose on a visa application that as a teenager in Canada he was charged with stealing some prescription drugs from a pharmacy where he was working. He said the matter was expunged several years later and he did not think it needed to be disclosed on the visa application when he later came to the United States as a graduate student.
It’s not clear why prosecutors had Mr. Horvath testify about the prescription drug theft, but prosecutors often have cooperating witnesses voluntarily disclose any negative information about themselves to avoid giving the defense a chance to discredit the witness.
The Steinberg trial has lost a bit of its tension because it comes after SAC’s guilty plea and the firm’s agreement to stop managing money for outside investors. But the case remains an important one for prosecutors because Mr. Steinberg was one of the closest employees to Mr. Cohen to get caught up in the insider trading scandal.
In its indictment of SAC Capital in July, the government named seven people, including Mr. Steinberg and Mr. Horvath, who had either been charged or convicted of insider trading while working at the firm.
The 41-year-old Mr. Steinberg, who is technically on leave from his job at SAC, is charged with using insider information to make trades in shares of Dell in August 2008 and a few months later to make trades in shares of Nvidia Corporation. The authorities say that Mr. Horvath passed on the inside information to Mr. Steinberg.
Mr. Steinberg’s defense team is expected to argue that he did not know the information passed on by Mr. Horvath had been improperly obtained.
Mr. Horvath said his job at SAC Capital was to have a “deep fundamental understanding†of the technology companies he covered and to “make recommendations to Mike as to whether to invest in the stocks or not.â€
Before Mr. Horvath took the stand, a compliance officer for SAC Capital, John Casey, testified about the training session the firm held for employees about what constituted insider training. The government introduced evidence showing that both Mr. Horvath and Mr. Steinberg attended those sessions.
Mr. Horvath’s testimony will continue Wednesday morning before the trial breaks for the Thanksgiving holiday. Mr. Horvath, who could face more than 40 years in jail, also faces potential deportation.
