Prosecutors' strategy of meticulously documenting the insider-trading "pipeline" leading to Michael Steinberg paid off when a federal jury convicted the SAC Capital Advisors trader of securities fraud and conspiracy charges yesterday.
The tips "trailed right back up to Mr. Steinberg," Paul Skokandich, a member of the jury, told The Wall Street Journal.
The odds were stacked against Steinberg right from the beginning: Ten of the 12 jurors were in favor of a conviction on the first day of deliberations. According to Skokandich, a bookkeeper, the other two expressed skepticism that Steinberg knew the information he was getting from his analyst, Jon Horvath, was confidential.
One of the two also questioned whether the members of the insider-trading ring, four of whom testified against Steinberg, had personally gained through their actions. Skokandich said the deadlock was broken by "going back to the law" and SAC's own compliance policy. They also requested voluminous amounts of evidence, some of which U.S. District Judge Richard Sullivan called "nonsensical."
"Maybe they didn't know what they were asking," he suggested.
After lunch yesterday, the two wavering jurors voted with the rest to find Steinberg guilty.
Skokandich said the jury did not hold it against Steinberg that he did not testify in his own defense. And he said the jury did not adopt a "broad brush" theory. "Because three people in a company are being investigated, it doesn't mean that everybody is guilty," he said. "You can't put the blame on everyone or the shadow on everyone because of one person."
Still, Steinberg's conviction leaves the U.S. Attorney's Office in Manhattan's insider-trading record unblemished in recent years. It could also ease U.S. Attorney Preet Bharara's path in winning future convictions.
Notably, Steinberg's conviction could put additional pressure on former SAC portfolio Mathew Martoma to cooperate with the authorities. That could be significant because Martoma's case, set to go to trial next month, is not only the largest of the insider-trading cases, but is also the only one to directly involved SAC founder Steven Cohen, widely seen as the ultimate target of the investigation. Steinberg's defeat could also assist the Securities and Exchange Commission in its effort to have Cohen barred from the financial industry for life.
Cohen has not been accused of any criminal wrongdoing, but has been sued by the SEC for supervisory failures. He also last month agreed to have SAC plead guilty to insider trading, requiring it to pay a $1.2 billion fine and cease managing outside capital. But Bharara is thought to still be investigating Cohen in hopes of bringing criminal charges against him.
For his part, Steinberg remains free on bail and will be sentenced on April 25. He faces up to 85 years in prison, but will likely receive only a small fraction of that. No convicted insider-trader has ever received a sentence in excess of 12 years.
Steinberg's lawyer, Barry Berke, did not comment after his client's conviction, but is expected to appeal the verdict.