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Key witness faces heat in Steinberg insider trading case

Jon Horvath exits United States Court in lower Manhattan, January 18, 2012, after he was arrested by the FBI Wednesday along with six others in a scheme to reap nearly $62 million in illegal profits on trades on Dell Inc. REUTERS/Shannon Stapleton

By Nate Raymond

NEW YORK (Reuters) - The star witness in the government's case against SAC Capital Advisors portfolio manager Michael Steinberg faced aggressive questioning on Tuesday from Steinberg's lawyer, who sought to discredit his earlier testimony.

Jon Horvath, a former analyst at Steven A. Cohen's SAC hedge fund, was on his fourth day on the witness stand in Steinberg's high-profile insider trading trial in a federal court in New York.

Barry Berke, Steinberg's lawyer, questioned Horvath about statements he made last week that Steinberg had pushed him to obtain "edgy" information, at times eliciting seemingly contradictory answers from Horvath.

Under questioning by Berke, Horvath also testified he probably did not tell Steinberg specifically that he planned to "do something illegal" with insider information received from an analyst at another hedge fund who was feeding him tips.

"I don't think I ever explicitly told him I was going to commit a crime," Horvath said.

The statements provided signs of weakness in the government's case after three and a half days in which Horvath testified Steinberg pushed him to get inside information.

The cross-examination is set to continue on Wednesday and Horvath is expected to remain on the stand into Monday.

Horvath, who has pleaded guilty and is cooperating with prosecutors, is considered a key link in the government's case against Steinberg, the highest-level employee at the hedge fund to face criminal charges over alleged insider trading.

Steinberg, 41, is charged with five counts of securities fraud and conspiracy to commit securities fraud on charges he traded in Dell Inc and Nvidia Corp based on insider information supplied by Horvath. He denies wrongdoing.

He is the first SAC employee to face trial. The hedge fund agreed last month to plead guilty to fraud charges and pay $1.2 billion as part of the government's probe of insider trading.


Much of Berke's questioning Tuesday centered on a meeting in SAC's New York offices at which Steinberg, following a bad bet in 2007 based on Horvath's recommendation, encouraged him to cultivate sources with information on public companies.

In testimony last week, Horvath said Steinberg told him: "What I need you to do is get edgy, proprietary, market-moving information so we can use it to make money on these stocks."

Under questioning by Berke on Tuesday, Horvath initially said the meeting occurred a couple days after the bad trade took place. But Berke subsequently showed him several emails indicating Horvath was traveling to Taipai, Hawaii and San Francisco up until the new week following the trade going sour.

Asked by Berke if Horvath stood by his testimony, Horvath said he may have been wrong about the dates.

"Or that the conversation ever took place, isn't that true, sir?" Berke said, drawing an immediate objection from the prosecution that the judge sustained.


While the case against Steinberg has focused primarily on trades in Dell and Nvidia, earlier on Tuesday Horvath told a government lawyer he also shared insider tips about other companies with Steinberg, including Intel Corp, Sun Microsystems Inc and Hewlett-Packard Co.

Horvath said the tips on Sun Microsystems came from a former business school and skiing friend, Davide Pacchini, who worked at Sun in at the time.

A LinkedIn profile for Pacchini shows he worked from 2001 to 2008 in corporate operations and business development at Sun Microsystems, which was acquired by Oracle Corp in 2009.

Horvath said he shared information gathered from Pacchini with Steinberg. A trade in Sun Microsystems by Steinberg in 2008, after Horvath received a tip from Pacchini, helped net more than $1 million in trading profits, he said.

In at least one instance, Horvath testified to sending a recommendation to invest in Sun to an email account called "Steve Ideas" that was used to funnel trading recommendations to Cohen himself.

In an October 30, 2007, email to the Cohen account, Horvath wrote: "My edge is contacts at the company and their distribution channel."

Horvath sent a separate email with the same text to Andrew Lester, the head of Sigma Capital. Lester replied, copying in Steinberg and telling Horvath to "keep it up!"

The email prompted Steinberg to respond separately, without Horvath on the chain: "I suspect the line about contacts at the company may wake up our legal eagles."

Steinberg added that "fortunately," Horvath's Sun "guys don't actually work there anymore." But Horvath said on Tuesday that was "false," since Pacchini was employed at Sun at that time.

Pacchini did not respond to requests for comment. A spokesman for Oracle declined to comment.

The case is U.S. v. Steinberg, U.S. District Court, Southern District of New York, No. 12-cr-00121.

(Reporting by Nate Raymond in New York. Additional reporting by Emily Flitter. Editing by Andre Grenon)