Ex-SAC Trader Is Convicted of Insider Trading

Michael S. Steinberg, the highest-ranking employee at SAC Capital Advisors to become ensnared in a sweeping insider trading investigation, was found guilty on Wednesday of trading on secrets gleaned from some of the nation’s largest technology companies.

The conviction deals the latest blow to SAC, the giant hedge run by the billionaire stock picker Steven A. Cohen. Coming on the heels of a record $1.2 billion deal SAC struck with prosecutors along with pleading guilty to insider trading charges - concluding a rare criminal case against a large corporation - Mr. Steinberg’s conviction further clouds the future of a hedge fund that was once the envy of Wall Street.

The conviction, which coincides with SAC’s effort to overhaul its image and change its name, might also embolden federal authorities at a turning point in the decade-long investigation. While an acquittal might have had a chilling effect on the investigation, Mr. Steinberg’s conviction instead raised the likelihood that Mr. Cohen, after avoiding criminal charges for years, would face another round of scrutiny.

The verdict came as something of a surprise, after Mr. Steinberg’s legal team poked holes in testimony from the government’s star witness, another former trader at SAC. Prosecutors also privately conceded that the case had flaws, as they relied on circumstantial evidence like emails and trading logs rather than the sort of incriminating wiretaps that underpinned past insider trading trials.

But after a monthlong trial in Federal District Court in Manhattan - a dramatic display that illuminated the culture of a hedge fund that prosecutors now view as corrupt - the jury took only two days to reach the guilty verdict against Mr. Steinberg. The jury of nine women and three men, including two accountants and a former Postal Service worker, found him guilty on five counts of securities fraud.

Mr. Steinberg, 41, a husband and father of a young family that lives on the Upper East Side of Manhattan, appeared to faint briefly as the jury filed in to render their verdict.

Judge Richard J. Sullivan sent the jury back to the deliberation room as Mr. Steinberg’s lawyers rubbed his back, his stricken wife looking on from the front row. The judge sent out for some juice and asked Mr. Steinberg if he could stand and walk.

Mr. Steinberg, his face ashen, complied.

“Yeah, I think I’m O.K.,” he said.

Mr. Steinberg’s brother, who is a doctor, also checked on him.

The verdict, which protects Mr. Bharara’s perfect record for insider trading trials, is the latest victory in the government’s campaign to root out illegal conduct on Wall Street trading floors. Since 2009, Mr. Bharara’s office has secured 76 insider trading convictions without losing a single trial, winning cases that penetrated some of Wall Street’s most high-flying hedge funds and America’s most illustrious corporations.

But for both the government and SAC, Mr. Steinberg’s case was particularly important.

Underscoring his symbolic and practical significance for the broader investigation, Mr. Steinberg was the first SAC employee to stand trial in the government’s decade-long investigation of the hedge fund. The trial also offered a rare glimpse inside the fund’s inner workings, with the government securing testimony from the firm’s chief compliance officer, chief financial officer and Jon Horvath, the star witness who once worked under Mr. Steinberg at SAC.

For his part, Mr. Cohen, the billionaire investor and avid collector of art and real estate, is well on the way to converting his 21-year-old hedge fund into a so-called family office that mainly will manage an estimated $9 billion of his personal fortune. The 57-year-old Mr. Cohen, friends say, is weary of the investigation, though he believes that federal authorities have unfairly made him and some of his 900 employees targets.

Mr. Steinberg was arrested at his Park Avenue apartment in the predawn hours of Good Friday in March after returning from a family trip to Disney World. The arrest signaled that the government was reaching into the higher ranks of SAC, pursuing a senior trader who had joined the hedge fund more than a decade ago, after he earned a degree in history and philosophy from the University of Wisconsin.

And while Mr. Cohen had tenuous ties to other SAC employees who had been charged with wrongdoing, he attended Mr. Steinberg’s wedding at the Plaza Hotel years earlier. The pair also shared a hometown, Great Neck, N.Y., on Long Island, and a love of art. Mr. Steinberg introduced Mr. Cohen to Sandy Heller, a childhood friend who became Mr. Cohen’s art adviser.

Unlike Mr. Steinberg, most SAC employees charged criminally have cooperated with the government. Of the eight SAC employees charged criminally, six have pleaded guilty to securities fraud, including Mr. Horvath. One other employee, Mathew Martoma, is fighting the charges and faces a trial in January.

But Mr. Steinberg’s case could alter the course of Mr. Martoma’s. Prosecutors are holding out hope that Mr. Steinberg’s loss at trial could prompt Mr. Martoma to rethink his strategy and cooperate with the investigation.

When authorities charged Mr. Martoma in November 2012 with trading on secret drug trial information, they appeared to be closing in on Mr. Cohen, saying for the first time that he authorized the trades in question. Mr. Cohen also held a 20-minute call with Mr. Martoma the night before SAC began executing the trades in the drug makers Elan and Wyeth.

But prosecutors have not claimed that Mr. Cohen knew of the confidential information that Mr. Martoma is accused of obtaining. And without Mr. Martoma’s cooperation, authorities are unsure what happened on that call.

Authorities had similar hopes to turn Mr. Steinberg into a cooperator. And yet, even after he refused their overtures, authorities carried out a whirlwind of investigative activity at SAC.

That effort culminated in July, when prosecutors and the F.B.I. announced an indictment of the hedge fund, pointing to a “systematic” insider trading scheme that spanned several employees and more than a decade. After months of negotiating, SAC agreed to pay the $1.2 billion payout, a record for insider trading, and to wind down its business of managing outside money for investors. Prosecutors had threatened to raise the price of the deal if SAC declined to settle before Mr. Steinberg’s trial opened in mid-November.

Mr. Steinberg is accused of trading the stocks of the technology companies Dell and Nvidia after receiving confidential information about their earnings â€" trades that reportedly generated profits of $1.4 million. In opening arguments, the assistant United States attorney leading the case, Antonia M. Apps, told jurors that the trial would provide a “unique window” into the world of insider trading and the “secret pipeline” that Mr. Steinberg had into the technology companies.

Over the following weeks, Ms. Apps highlighted scores of emails and instant messages from Mr. Steinberg. She also called 13 witnesses, none more important than Mr. Horvath.

The case hinged on his testimony. Mr. Horvath, who pleaded guilty to insider trading in September 2012, testified how he was pressured by Mr. Steinberg to come up with “edgy” and “proprietary” information about the technology stocks their group traded.

Mr. Horvath, 44, said he had interpreted Mr. Steinberg’s words as a directive to get inside information.

“I thought he wanted me to cultivate sources of nonpublic information,” that is, violate insider trading laws, Mr. Horvath said, adding that he feared for his job. “I thought he’d fire me.”

But Mr. Steinberg, who did not testify, was at the end of a five-person chain of information that started with an insider at Dell and wound its way to Mr. Horvath and then Mr. Steinberg. And doubts arose about the credibility of Mr. Horvath, who acknowledged that he was testifying against his former boss in hopes of evading jail time.

During a bruising cross-examination by Mr. Berke, the attorney for Mr. Steinberg, Mr. Horvath conceded that Mr. Steinberg never explicitly told him to break the law by getting inside information. In one of the more dramatic portions of the cross-examination, Mr. Horvath also acknowledged that he never explicitly told Mr. Steinberg that some of the information was improperly obtained by analysts working at other hedge funds whom Mr. Horvath had befriended.

Mr. Horvath, who was born in Sweden and faces deportation, also could not remember the specific day in summer 2007 on which he said Mr. Steinberg put pressure on him to get “edgy, proprietary information.”

But the emails proved damaging. In one email from August 2008, sent a few days before Dell’s quarterly earnings announcement, Mr. Horvarth wrote that he had “a 2nd hand read from someone at the company,” adding, “Please keep to yourself as obviously not well known.”

In reply, Mr. Steinberg wrote: “Yes normally we would never divulge data like this, so please be discreet.”

And when Mr. Horvath learned of Dell’s secret plans to announce a major cost-cutting venture, he again alerted Mr. Steinberg.

“I like the Dell chart,” Mr. Steinberg replied, indicating SAC should double down on the stock.

During the month-long trial, Mr. Steinberg kept a stoic demeanor, conversing during breaks with Mr. Berke and the large contingent of family members and close friends who have attended much of the proceedings. A constant presence during the trial was his wife, her parents and Mr. Steinberg’s parents, who were all seated in the courtroom gallery behind the defense table where Mr. Steinberg and Mr. Berke sat.

As the jury deliberated in recent days, Mr. Heller made an appearance in the courtroom, sitting with Mr. Steinberg’s family and friends, including at one point a rabbi.