SAC portfolio manager arrested by FBI

Story originally appeared on USA Today.

The Justice Dept. has targeted another veteran of one of the nation's largest hedge funds with insider trading.

Portfolio manager Michael Steinberg, a senior member of hedge fund firm SAC Capital Advisors, was arrested at his New York City home early Friday by FBI agents on charges that he used inside information to generate $1.4 million in profits for SAC Capital, the $15 billion hedge fund founded by billionaire Steven Cohen.

A five-count indictment says Steinberg, 41, used the information trading shares of Dell and computer chip maker Nvidia. He pleaded not guilty at a Friday federal court hearing and was released on $3 million bail. If convicted, Steinberg faces a prison term of up to 20 years for each charge.

Steinberg is the latest current or former SAC Capital employee to be charged or implicated with insider trading. On March 15, two SAC affiliates agreed to pay $616 million to the government to settle civil charges of insider trading, a record settlement involving insider trading. SAC neither admitted nor denied wrongdoing.

Steinberg's arrest had been expected after former SAC analyst Jon Horvath, pleaded guilty last year to using illegally obtained information trading Dell shares. Horvath has been cooperating with the government and had implicated Steinberg.

In a related civil complaint against Steinberg, the Securities and Exchange Commission said the information allowed him to generate $6.4 million in profits and avoided losses for Cohen's hedge fund.

The FBI says its five-year insider trading probe has resulted in over 70 arrests so far.

"Mr. Steinberg was at the center of an elite criminal club, where cheating and corruption were rewarded," said George Venizelos, head of the FBI's New York office. "Research was nothing more than well-timed tips from an extensive network of well-sourced analysts."

U. S. Attorney Preet Bharara said Steinberg "was another Wall Street insider who fed off a corrupt grapevine of proprietary and confidential information cultivated by other professionals who made their own rules to make money. With lightning speed in at least one case, Mr. Steinberg seized on the opportunity to cash in and tried to keep his crime quiet, as charged in the indictment."

But Steinberg's attorney, Barry Berke, said Steinberg did nothing wrong and that his client's trades were based on detailed analysis along with other information he properly obtained. "Caught in the crossfire of aggressive investigations of others, there is no basis for even the slightest blemish on his spotless reputation," Berke said in a statement.

SAC Capital spokesman Jonathan Gasthalter said: "Mike has conducted himself professionally and ethically during his long tenure at the firm. We believe him to be a man of integrity."

Still, Friday's arrest, followed by January's arrest of another former hedge fund manage, heightened speculation that the government is taking a hard look at Cohen's practices. In the January case, a criminal complaint repeatedly referenced as a "Hedge Fund Owner."

Cohen has yet to be charged. SAC has said Cohen and the company are cooperating with the inquiry and "are confident that they have acted appropriately."

Separately, an Australian former research analyst - extradited to the U.S. from Hong Kong to face trial in an insider trading case - was scheduled to appear in a New York federal court Friday afternoon.

Trent Martin, 33, faces conspiracy and securities fraud charges, accused of trading illegally ahead of the public announcement of IBM's 2009 acquisition of a software company, SPSS.

Prosecutors say a corporate lawyer on the legal team representing IBM had shared inside information with his close friend, Martin, believing it would be kept confidential.