SAC Trader Had ‘Secret Pipeline’ of Information, Prosecutors Say

Michael S. Steinberg is “successful, steady, serious,” said a lawyer for the most senior employee at SAC Capital Advisors to be charged with insider trading. And unlike the hard-charging billionaires who rule Wall Street’s top hedge funds, Mr. Steinberg was a history and philosophy major who started at SAC as a low-level clerk, the lawyer said.

Federal prosecutors, however, view the trader through a darker lens. Mr. Steinberg, they said, tapped into a corrupt insider trading conspiracy to make “big money” for himself. He also, they say, pushed a lower-level employee at SAC to provide “edgy” and illegal information about technology companies.

Those dueling portrayals of Mr. Steinberg, a 41-year-old trader who was among SAC’s earliest employees, emerged on Wednesday from opening arguments in his criminal insider trading trial at Federal District Court in Lower Manhattan. Mr. Steinberg is the first SAC employee to stand trial in the government’s decade-long investigation of the hedge fund, which is run by the billionaire stock picker Steven A. Cohen.

Mr. Steinberg’s trial, which strikes at the heart of that investigation, is unfolding two weeks after SAC agreed to pay $1.2 billion and plead guilty to five counts of insider trading violations. The authorities indicted the fund in July, pointing to a “systematic” insider trading scheme that spanned several employees and more than a decade.

The trial, the authorities contend, will illuminate the culture at SAC that opened it to such scrutiny. Of the eight SAC employees charged criminally, six have pleaded guilty to securities fraud.

Mr. Steinberg is accused of trading the stocks of technology companies like Dell and Nvidia after receiving confidential information about their earnings. He received this through Jon Horvath, an SAC employee who was plugged into a network of analysts that shared and traded notes on the companies. The original sources of the information, employees at Dell and Nvidia, have not been accused of any wrongdoing.

Mr. Steinberg’s lawyer, Barry H. Berke, and the assistant United States attorney, Antonia M. Apps, delivered opening arguments to a jury of nine women and three men that included two accountants and a former Postal Service worker.

Ms. Apps outlined the evidence the government would present: emails, phone records and trading records between Mr. Steinberg, Mr. Horvath and other analysts. This evidence would provide a “unique window” into the world of insider trading and the “secret pipeline” that Mr. Steinberg had into certain companies, she said.

“The defendant wanted” inside information, Ms. Apps said, “and the defendant got” it.

For his part, Mr. Berke explained to the jury the world of hedge funds, likening it to mutual funds, investments that many of the jurors had earlier disclosed that they owned. He also sought to distance Mr. Steinberg from the sharp-elbowed world of Wall Street, emphasizing how SAC managed millions of dollars on behalf of pension funds and universities.

The case, Mr. Berke said, hinges on Mr. Horvath.

The government presented Mr. Horvath as an employee who aimed to please Mr. Steinberg and who worked hard to provide him with the research and information he needed to make fruitful trades.

Under pressure to provide “edgy proprietary information” of the kind that would satisfy Mr. Steinberg, the prosecutor said, Mr. Horvath turned to a circle of friends and analysts that shared information.

As evidence, the government will reference an email from August 2008 in which Mr. Horvath told Mr. Steinberg that he had “a 2ndhand read from someone” at Dell, adding, “Please keep to yourself as obviously not well known.”

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

Mr. Berke sought to undermine Mr. Horvath’s significance, saying that he was “recreating history” in a desperate attempt to strike a deal with the government.

The opening remarks came late in the afternoon on the second day of jury selection. The pool of jury candidates included Occupy Wall Street participants. Two others disclosed that they had been investigated by the Securities and Exchange Commission. They were all dismissed.

“I know there are strong views about Wall Street,” Mr. Berke said as he wrapped up his opening remarks just after 5 p.m.

Mr. Berke urged the jurors to consider one question: Whether the government could prove beyond a reasonable doubt that Mr. Steinberg was guilty. Referring to Mr. Steinberg’s family in the gallery, Mr. Berke reminded members of the jury that they were holding the fate of one man in their hands.