Ex-Trader at SAC Fund Is Sentenced to 3 Years

Updated, 7:50 p.m. | A federal judge seemed pained at times on Friday in sentencing the former hedge fund trader Michael Steinberg to three and half years in prison for his conviction last year on insider trading charges.

On several occasions, Judge Richard J. Sullivan of Federal District Court in Manhattan talked about Mr. Steinberg’s character and how he doubted Mr. Steinberg would break the law again.

The judge said he was particularly moved by the 68 letters that Mr. Steinberg’s family members and friends had written on his behalf before the sentencing. The letters, which Judge Sullivan said seemed genuine and not part of an organized campaign by Mr. Steinberg’s defense lawyers, had persuaded him that Mr. Steinberg, one of the longest tenured traders to work for the billionaire investor Steven A. Cohen at SAC Capital Advisors, was a “good man” who had made a mistake in an effort to make more money.

“This doesn’t define you,” Judge Sullivan told Mr. Steinberg, 42. “This is a sad day for everyone.”

But Judge Sullivan said the prison sentence, coupled with a $2 million fine, was necessary to send a message to others on Wall Street that insider trading is not a trivial crime. He said the evidence produced during a monthlong trial showed that Mr. Steinberg’s trading on inside information was not isolated and was part of a pattern of “systematic trades over months and years.”

Once the sentencing hearing was complete, many of the three dozen family members and friends who had come to the proceeding approached Mr. Steinberg to hug or kiss him. Judge Sullivan agreed to let Mr. Steinberg, a married father of two young children, remain free pending the outcome of an appeal, which his lawyers are expected to file soon.

The sentence imposed by Judge Sullivan was less than the minimum penalty suggested by the federal sentencing guideline for Mr. Steinberg’s crime. The sentence was also considerably less than the prison term that prosecutors working for Preet Bharara, the United States attorney in Manhattan, had sought. They had recommended the judge impose a sentence of five years and three months to as much as six and a half years.

But the sentence was more than the two years recommended by Mr. Steinberg’s lawyer, Barry Berke, who declined to comment after the nearly hour-and-a-half proceeding.

For the most part, the sentencing proceeding lacked the courtroom drama of Dec. 18, when Mr. Steinberg briefly fainted before a jury announced that it had convicted him of generating $1.8 million in illegal trading profits for Mr. Cohen’s firm, now called Point72 Asset Management. On Friday, he stood calmly when Judge Sullivan imposed the sentence. Mr. Steinberg, wearing a dark navy business suit, declined an opportunity to speak on the advice of Mr. Berke.

Mr. Steinberg is one of eight people who once worked for Mr. Cohen to either plead guilty to or be convicted of insider trading. SAC itself pleaded guilty to insider trading charges and paid a $1.2 billion penalty to federal prosecutors. Mr. Cohen has not been criminally charged, but the Securities and Exchange Commission has a pending administrative failure to supervise action against him. He officially renamed his firm days before another federal judge accepted SAC’s guilty plea.

Mr. Cohen’s new firm is structured as a family office, managing $9 billion to $10 billion of his personal fortune.

On appeal, Mr. Steinberg’s lawyers are expected to raise a legal challenge similar to one that seemed to receive a favorable hearing last month from a three-judge appellate panel.

During a contentious oral argument, the panel signaled that it had serious issues with the jury instructions that Judge Sullivan had given in a related insider trading prosecution involving Todd Newman and Anthony Chiasson. The two men were portfolio managers at other hedge funds but traded on some of the same inside tips as Mr. Steinberg. The appellate panel appeared to side with the defense lawyers for Mr. Newman and Mr. Chiasson, who contended that Judge Sullivan erred when he failed to instruct the jury that it had to determine whether traders knew the person providing inside information had received some sort of a benefit.

A decision is still pending in that appeal.

Judge Sullivan did not directly address that legal challenge. But he did say he thought that in Mr. Steinberg’s case, the “jury’s verdict was justified based on the evidence.” On Thursday, Judge Sullivan issued a 10-page ruling denying Mr. Steinberg’s motion to throw out the jury’s conviction.

The sentence Judge Sullivan handed down to Mr. Steinberg was less than the six and a half years he gave to Mr. Chiasson and the four and a half years he gave to Mr. Newman. The judge said a lighter sentence was warranted for Mr. Steinberg because the dollar amount involved in his crime was less and in some ways, he was a less culpable member of what prosecutors called a “criminal club” of analysts and traders.

Prosecutors contended the traders and analysts shared inside information about earnings at technology companies like the computer maker Dell and the chip maker Nvidia.

Judge Sullivan ended the proceeding by wishing Mr. Steinberg and his family “good luck” and urged them not to focus on news media reports that might turn the sentencing into a morality play.