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Key witness against SAC's Steinberg finishes testimony

Former SAC Capital portfolio manager Michael Steinberg (R) arrives with his lawyer Barry Berke at the Manhattan Federal Courthouse in New Yo
Former SAC Capital portfolio manager Michael Steinberg (R) arrives with his lawyer Barry Berke at the Manhattan Federal Courthouse in New Yo

By Nate Raymond

NEW YORK (Reuters) - The government's star witness in its insider trading case against SAC Capital Advisors' Michael Steinberg faced a final day of questioning on Wednesday, as lawyers sparred over whether he was a credible cooperator or a liar.

Jon Horvath, a former SAC analyst under Steinberg who pleaded guilty to insider trading offenses last year, left the stand after testifying for nine days.

Steinberg's lawyer, over the course of a lengthy cross-examination, had sought to portray Horvath as a liar who falsely implicated his boss to avoid jail time.

But on Wednesday, the judge allowed prosecutors to ask Horvath about the extent to which he provided information about others under his cooperation deal, over the objections of Steinberg's lawyers.

Among those Horvath provided information against was Steven A. Cohen's hedge fund itself, which in November agreed to plead guilty to fraud charges and pay $1.2 billion as part of the insider trading probe.

U.S. District Judge Richard Sullivan said he saw no reason why the jury "shouldn't know the white whale, who in many ways was the focus of the investigation, was caught."

Horvath's testimony was a high point in the trial of Steinberg, the highest-level employee at SAC Capital to face criminal charges and the first to fight his case before a jury.

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.

While three other individuals have testified in Steinberg's trial, Horvath, 44, had from the beginning been seen as critical to providing a link between Steinberg's trading and insider tips his subordinate received from what prosecutors termed a "corrupt circle" of Wall Street analysts.

Prosecutors say that members of the circle would swap inside information they cultivated and feed up to their hedge fund bosses for trading.

None could provide as clear of a link to Steinberg as Horvath, who worked directly under him. On his first day on the stand, Horvath testified that Steinberg had told him in 2007 to "get edgy, proprietary, market-moving information so we can use it to make money on these stocks."

Barry Berke, a lawyer for Steinberg, sought over five days of cross examination to call into question Horvath's credibility, testing his memory for example of the 2007 meeting and pounding on the extent his cooperation might lead to leniency.

"Isn't it a fact that in order to get a benefit once again, you're telling a lie, this time by falsely implicating Mr. Steinberg?" Berke asked Tuesday in his final question.

"No," Horvath replied.

Cross-examining Horvath took longer than expected, a point Sullivan has noted as the trial gets closer to the week of Christmas.

At times, some jurors could be seen with eyes closed and their heads either tilted or bobbing as terms like "sizing worksheet" and "mosaic theory" were bandied about.

Horvath was the second of an expected four members of the circle of analysts expected to take the stand in Steinberg's case.

He followed Jesse Tortora, a former analyst at hedge fund Diamondback Capital Management who likewise pleaded guilty and was called as the second witness in Steinberg's case.

Testimony by Horvath and Tortora detailed how the Diamondback analyst would regularly pass along information about Dell's revenues, gross margins and operating costs ahead of earnings reports.

Tortora, 36, said his source was Sandy Goyal, an analyst at Neuberger Berman who prosecutors say in turn got information from Rob Ray, then an employee in Dell investor relations.

Under questioning by Berke, both Horvath and Tortora have given testimony demonstrating the limits of what the SAC analyst knew about the Dell source.

Horvath in testimony said he didn't know Goyal was the source until after the trades were done, only just that Tortora had a "good Dell check."

But Horvath said Steinberg was aware that he was receiving information from Tortora on Dell, which then became the basis of trades at SAC.

Goyal is expected to testify later in the trial, which the judge is bracing for continuing for another two weeks.

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

(Reporting by Nate Raymond; Editing by Leslie Adler)