Alleged SAC Capital Advisors insider trader Michael Steinberg got his first shot at his accuser Tuesday — and immediately started ripping his credibility to shreds.
Defense lawyer Barry Berke, moving quickly through a list of probing questions — like a boxer throwing a series of seemingly harmless jabs — got the prosecutor’s key witness Jon Horvath to reveal that “edgy” and “proprietary” were terms often thrown around at SAC, where they both worked.
Horvath earlier testified that Steinberg asked him to get “edgy, proprietary” information after trade ideas of his lost money in 2007, and Horvath said he took that to mean “nonpublic, material” info — or inside information.
But Berke, getting his first shot at cross-examination of Horvath in Manhattan federal court Tuesday, used two hours of withering questions to reveal that Horvath used one of the terms even before he joined Steve Cohen’s SAC hedge fund.
In a bombshell piece of evidence, a document called “Jon’s Trading Rules,” created by Horvath — which prosecutors didn’t know existed — Horvath asked himself the question, “What do I have that is proprietary?”
With Steinberg barely suppressing a smile, Berke asked about “Jon’s Trading Rules.” A squirming Horvath first said it was written while he was at SAC.
He then said he could not remember when he wrote it. Finally, he said, “I don’t remember creating this document.”
Nor did Horvath remember the day he began working at the hedge fund, or the email Steinberg forwarded to him on his first day, Sept. 18, 2006. Written by former SAC analyst Nils Tristan, it used the word “edgy” three times to discuss the type of research information on companies SAC found useful.
“If you hear something from the grapevine, there is a 90 percent chance it’s not edgy,” the email, written in 2004, said. “We no longer use that type of information.”
The email also mentioned making sure information has been “triangulated by multiple proprietary sources.”
Horvath conceded the words “edgy” and “proprietary” were used often during his time at SAC — and weren’t referring to illegal info — but said that Steinberg meant something different when he asked him to get that type of information in 2007.
“I don’t think edgy proprietary has the same meaning as the conversation we had later,” he told the jury.
But Horvath had to acknowledge, when presented with emails he had written in which he had used the term “proprietary checks” to refer to conversations with executives at companies he covered, that he wasn’t referring to anything improper or illegal.
The defense also introduced documents from Sigma Capital, the SAC unit where both Horvath and Steinberg worked, that recommended analysts’ “high conviction” ideas should be based on an “analytical edge.”
The new documents threw a wrench in the prosecution’s case. “We were only handed these documents moments before they were produced,” complained prosecutor Antonia Apps, in objecting to their admissibility.
Judge Richard Sullivan admitted some of the evidence and said he would review others Wednesday before testimony begins.
Berke promised another three days of cross-examination — and hundreds of more surprise documents.
Steinberg faces up to 20 years in prison if prosecutors convince the jury he knew the Horvath-fed info was illegal — a charge he clearly denies.