With Dramatic Ending, SAC Portfolio Manager Is Convicted of Insider Trading

Michael Steinberg exits federal court in New York, on Dec. 18 Photograph by Louis Lanzano/Bloomberg

Shortly after the jury filed into the courtroom yesterday to deliver its verdict in Michael Steinberg’s insider trading case, someone screamed. The color had drained from Steinberg’s face, and he slumped forward in his chair, briefly appearing to lose consciousness. His wife Liz, who had kept vigil in the first row throughout her husband’s four-week trial, cried out and reached toward him over the barrier separating the spectators from the actors in the courtroom. Paramedics were called, and the jury was ushered away. Before they left the room, they managed to hand over the envelope containing their decision, but no one yet knew what was in it.

The prosecutors, Antonia Apps and Harry Chernoff, looked stricken. The trial had not gone smoothly for them, and the prospect of an embarrassing loss was looming. Friends and relatives of Steinberg, meanwhile, appeared to be praying. His mother and mother-in-law clung to one another in the first row. After minutes of tense silence while Steinberg was tended by the court nurse and by his physician brother, who had rushed to the scene, he resumed his seat at the defense table, and the jury filed back in.

Only then was the verdict finally read aloud: Michael Steinberg, the SAC Capital portfolio manager and confidant of SAC founder Steven Cohen, was found guilty on five counts of securities fraud.

One person paying close attention surely was Cohen, Steinberg’s employer since 1996, as this outcome increases the pressure on him. Cohen has long been believed to be the ultimate target of the government’s multi-year crackdown on insider trading. His firm pleaded guilty to securities fraud in November, but so far Cohen himself has avoided criminal charges. Steinberg’s conviction strengthens the chances that another of Cohen’s former employees charged with insider trading, Mathew Martoma, who is due to go on trial Jan. 6, may yet turn and testify against Cohen. It also makes it less likely that Cohen can defend himself against a civil charge lodged against him by the SEC—the only agency to charge Cohen personally. The SEC is seeking to bar Cohen from the securities industry for life, and he had been telling people that he plans to fight it.

One of the most notable aspects of the decision was how quickly it was rendered, barely a day and a half into deliberations. All day Tuesday and through the early part of Wednesday, the 12 jurors—nine women and three men—had been sending out questions scrawled on sheets of paper like ransom notes: requests for clips of testimony; demands for clarification of what constitutes illegal information; what information a company investor relations professional is legally allowed to give out; gross margin numbers for Dell and Nvidia, the two stocks at the heart of the case. In short, they appeared to be grappling, until the very last minute, with issues at the heart of the case.

The perception that the jurors were confused seemed to stimulate a sense of confidence on the part of the defense and the feeling that this might have been the first case to topple Manhattan U.S. Attorney Preet Bharara’s perfect 76-0 record for insider-trading convictions. The fact that it wasn’t evidently came as a shock to Steinberg.

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