A top lieutenant to billionaire Steven A. Cohen was convicted of insider trading Wednesday in a verdict that could strengthen the government’s outstanding cases involving the storied hedge fund Cohen created two decades ago.
After two days of deliberation, a federal jury in Manhattan found Michael Steinberg guilty of trading on illegal tips involving technology stocks. While eight employees of SAC Capital Advisors have been accused or convicted of insider trading over the years, Steinberg was the highest-
ranking among them and a longtime Cohen confidant.
His case was also the most challenging for the government, some legal experts said. Prosecutors needed to prove that Steinberg knew the information he traded on was illegally obtained, even though he was a few steps removed from the source of the tip.
Steinberg, who faces decades in prison, appeared to briefly faint as the jury prepared to deliver its verdict, according to several news media reports.
“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,” Preet Bharara, U.S. attorney for the Southern District of New York, said in a statement.
The jury found Steinberg guilty of five counts of conspiracy and securities fraud.
An SAC spokesman declined to comment.
The conviction is the latest victory for Bharara in his aggressive push to purge Wall Street of insider trading. His team has been closing in on SAC and its employees in recent years.
His most high-profile success on that front came in November, when SAC agreed to pay $1.2 billion to settle charges that it tolerated rampant insider trading for more than a decade. SAC agreed to plead guilty to each of the five counts in the criminal indictment.
As part of that deal, the firm agreed to stop managing the money of outside investors, but it can continue to manage Cohen’s fortune. The government has not accused Cohen of criminal wrong-doing. But he remains a target of a civil case brought by the Securities and Exchange Commission.
The SEC alleges that Cohen failed to supervise Steinberg and Mathew Martoma, a former portfolio manager who was charged by the government with running a separate insider-trading scheme while working closely with Cohen. Martoma is fighting the charges, and his trial is scheduled to begin in January.
Thomas O. Gorman, an attorney at Dorsey & Whitney, said the outcome of the Steinberg trial bodes well for the government as it tries to close in on Cohen and Martoma.
“This is one more conviction for the SEC to point to when they claim that Cohen failed to supervise,” said Gorman, who has worked for the SEC’s enforcement division. “It also puts a cloud over Mr. Martoma’s case, which by all accounts is more difficult from a defense point of view.”
But Martoma’s attorney, Richard Strassberg, disagreed.
“The facts in Steinberg’s case are totally unrelated to the facts in the case against Mr. Martoma,” Strassberg said in a statement. He declined to elaborate.