Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street

by Sheelah Kolhatkar

  Apps was known as someone who, when presented with the choice between going out for drinks with her colleagues and staying late preparing for a trial, almost always chose the latter. Tall and fit, she was a former national figure skating champion who had left a lucrative partnership at a white shoe law firm to prosecute securities cases at the U.S. Attorney’s Office. She wanted to be here.

  Her job was to take a vastly complicated case and turn it into the simplest story possible: Michael Steinberg was a rich Wall Street guy who had cheated. “He wanted to make big money for himself and for the hedge fund for which he worked,” Apps said. “That, ladies and gentlemen, is called insider trading, and it’s a serious crime.”

  In an environment where the average person harbored unfocused but intense anger toward Wall Street, Steinberg was a juicy target. Privileged, arrogant, he lived on another plane from most Americans. He was not Steve Cohen, but he was close.

  The job of saving Steinberg from this characterization fell to his defense lawyer, Barry Berke. Where Apps was meticulously rehearsed, Berke was willing to improvise, with the affect of a congressman who knew how to turn on the charm. Berke had wanted to be a defense attorney since he was in law school at Harvard, when he had stumbled into the glare of TV news cameras on the courtroom steps after defending a wrongful conviction case as a student.

  He loved that moment in the spotlight. “This better not be the last time there are cameras for one of my cases,” he had thought.

  Berke smoothed his tie and turned toward the jury, gripping the sides of the podium. To test out his arguments, Berke had staged two mock trials and recorded the proceedings so that he and his partners could analyze their performances. He had researched every juror on the case, scouring their social media footprints for any sign of their views about Wall Street or the government. He knew the facts of the case better than anyone. As in the Martoma defense, SAC was paying the bills.

  He flashed the jurors a smile and launched into a parable that was meant to illustrate the core of Steinberg’s defense: that Horvath, Steinberg’s former underling, was only testifying against Steinberg to save himself. Not everyone in the room understood the point he was trying to make with the parable, which involved a farmer falling into a well, but Berke went ahead anyway. “He needed to point the finger at somebody to get a deal,” Berke said, referring to Horvath. “So he pointed it at Mike Steinberg.”

  Berke’s first task was to undermine Horvath and portray him as a dishonest person who was trying only to save himself. His second job was subtler and, given the political environment, far more difficult. He had to humanize Steinberg. He had to show the jury that Steinberg was a generous, warm family man, not simply another greedy hedge fund millionaire who spent his summers in East Hampton. It was not going to be easy.

  Berke tried to explain what it was that Steinberg did for a living in the plainest terms possible. “SAC is a fund,” he said in his most obsequious voice. “It’s kind of like a mutual fund….”

  There was some snickering in the room. Describing SAC as similar to a mutual fund was sort of like describing the New York Yankees as a group of kids who played baseball.

  “He worked hard to become a portfolio manager,” Berke continued. “He was someone who was known as successful, steady….He was dependable, and he was paid well for it.”

  Steinberg’s wife, Elizabeth, had taken it upon herself to try to push back against what she felt were unfair perceptions of her husband. She had encouraged a group of supporters to attend the trial, and they filled almost the entire left side of the courtroom. She had even instructed them on how they should look so it wouldn’t backfire on her husband. “Dress conservatively,” she wrote in an email to the group. “We request that women wear no jewelry or furs, and no designer scarves, handbags, etc.”

  Liz herself wore a black sweater, black slacks, and flat shoes, like an Italian widow, and sat in the front row between Steinberg’s parents and her own. Behind them were several more rows of men and women in dark clothes—assorted uncles, aunts, and cousins and another dozen or so friends, several of whom were regulars in the Manhattan society pages. Sandy Heller, Cohen’s art advisor and Steinberg’s childhood friend, was in attendance, along with his twin brother, Andy, who ran his own hedge fund. Other defendants in insider trading cases had tried to do the same thing; the idea was to show the jury that this was not some amoral, greedy trader but a good neighbor who donated to charity and had people who loved and believed in him.

  If Steinberg was resentful that he was here, while Cohen was free to do as he pleased, he didn’t show it. He had refused multiple offers to cooperate. Apps had made it clear that the government was interested in anything he had to say, no matter how insignificant it seemed. But Steinberg had refused. And based on conversations he had had with some of the top criminal defense lawyers in the country, he thought that he had a shot at getting acquitted.

  “I know there are strong views today about Wall Street,” Berke said to the jury, preparing for the finale of his opening argument. “I don’t have to tell you, this case is not a referendum on Wall Street, as you know. This case is really about one question. That’s this guy, Michael Steinberg.” He implored them to find Steinberg not guilty of all the charges. Then Berke collapsed into his chair.

  —

  When Horvath was led into the courtroom three days later, he looked out of place, like a little boy wearing his father’s suit. He had a deep tan, and his hair was spread like a fringe across his eyes. Steinberg’s wife glared at him as he walked past.

  By this point, Steinberg had already suffered some damage. On the second day of trial, Apps had lingered over slides showing how much money Steinberg had made in 2007 and 2008, when his bonus was well into the millions of dollars. It was sure to seem like an unimaginable fortune to the jurors, a group that included a former postal worker, a motel bookkeeper, and a tennis court attendant. Then Jesse Tortora, Horvath’s source on the Dell tips, spent two days testifying about how he’d obtained inside information from a friend who used to work at Dell and given it to Horvath, who shared it with Steinberg.

  With a cool, detached manner, Apps asked Horvath what he was hoping to gain by agreeing to testify against Michael Steinberg.

  “I’m hoping to avoid jail time,” Horvath said.

  Shortly before 3 P.M. on the eighth day of the trial, the moment Berke had been waiting for arrived: He would have the opportunity to cross-examine Horvath. Privately, he called it the “snitch cross.”

  So far, Apps’s approach had been effective. While Horvath was far from a sympathetic character, he sounded like he was doing his best to describe events the way he remembered them. He was a weasel, but a believable weasel.

  A large team of attorneys, associates, and paralegals had helped Berke prepare for this; private investigators had tracked down Horvath’s friends and family members; they had subpoenaed his files from his previous jobs; Berke’s firm had even hired a forensic computer expert, who had taken Horvath’s laptop from SAC and re-created the Google searches he had conducted from that machine. They learned, for example, that after he was arrested, Horvath researched document-shredding companies. Berke was armed with six hundred pages of arguments and evidence to counter every possible excuse or explanation Horvath could put forth.

  Berke stood up and strode toward the podium. He immediately focused on Horvath’s claim that Steinberg had ordered him to get inside information at SAC.

  “He told you, according to your testimony, he wanted you to get ‘edgy proprietary information,’ ” Berke said. His tone was hostile. “Is that your testimony?”

  “Yes,” Horvath said.

  “What did you say?” Berke asked. “What did you say?”

  Horvath said he didn’t think he had responded to Steinberg.

  They went back and forth, with Berke pressing him about whether he had said anything in response to Steinberg’s directive. He seemed to be trying to get Horvath to admit that it was
n’t clear what Steinberg had been asking. The stakes were higher than usual, because Steinberg was not expected to take the stand himself. Horvath’s credibility alone would determine Steinberg’s future.

  Berke questioned him for five days. At one point, on the second day of the cross-examination, he goaded Horvath into saying, of Steinberg, “He didn’t explicitly tell me to go out and break the law!” At that, Steinberg smiled for the first time since the trial began.

  “Isn’t it true,” Berke said, “that you’re telling a lie by falsely accusing Mr. Steinberg?”

  Without looking up, Horvath shook his head, no.

  By the time Berke was finished, Horvath had been severely weakened as a witness. Apps was able to undo some of the damage when her opportunity for redirect arrived. She walked Horvath back through the core facts of the case: Steinberg had told him to get illegal information; Steinberg knew that the information Horvath was giving him came from someone inside Dell; they shorted the stock before the earnings announcement; Horvath never concealed the source of the information from Steinberg.

  When she was done, on December 13, the government rested its case.

  —

  When the jury started deliberating a few days later, Berke was feeling good about Steinberg’s chances. It was one of his strongest trials, he thought. Nothing undermined a prosecution’s case like showing its key witness to be untrustworthy, and he felt that he’d done that on several fronts. A scenario in which Steinberg was acquitted, which had seemed laughable at the outset of the trial, was suddenly very real.

  The courtroom emptied out, aside from Steinberg, his wife, their parents, and the two sets of lawyers. For Berke and his team, the possibility that this might be the first case to topple Preet Bharara’s perfect 76-0 record for insider trading convictions was exhilarating.

  What the lawyers, family members, and news reporters who were standing by for the verdict didn’t know as the hours ticked by was that, inside the overheated jury room, the jurors had reached an impasse. Halfway through the second day of deliberations, two of the jurors were not convinced that Steinberg explicitly knew that Horvath was giving him inside information about Dell. The jurors had struggled throughout the trial, which included thirteen witnesses over five weeks, to understand all the financial jargon, the references to “edge” and “channel checks” and gross margins. Several felt that Horvath was dishonest, someone who did whatever it took to “save his own skin,” in the words of one juror. The jury forewoman, a massage therapist from Manhattan named Demethress Gordon, counted twenty-eight times that she felt Horvath was lying. As she later put it, she “didn’t believe anything he said.”

  Still, ten of the jurors argued with Gordon and the other holdout, the fact that Horvath was dishonest didn’t mean that Steinberg didn’t know what was going on.

  Gordon had written down notes throughout the trial. She prided herself as a judge of character. She was one of the ones who was resisting voting to convict. She was just not convinced of Steinberg’s guilt.

  After an hour of fruitless back-and-forth, a different juror suddenly had an idea. The juror asked Gordon to get up and walk through the doorway in the jury room, as part of a demonstration. Gordon did it. Then the other juror said: “I told you to go through the door, but I didn’t tell you explicitly how to go through the door.”

  It was like two wires connecting. Gordon knew how to walk through the door without being explicitly told how to do it. It was the same as being ordered to get “edgy” information. Horvath understood what that meant without having it spelled out.

  The other holdout, a seventy-one-year-old woman, was swayed by the demonstration as well. She had been struck by Steinberg’s instruction to Horvath after receiving the “2nd hand read” email, when he told his underling to keep the information “especially on the down low.” That seemed to indicate a clear understanding that the information was illegal. Both pieces together seemed to indicate guilt.

  At 2:59 P.M. on December 18, 2013, the jury took a vote. They voted unanimously to convict.

  The clerk told the judge that the jury had reached a verdict. Suddenly, the courtroom, where people were lounging around, grew tense. Both sets of lawyers started sending out emails, letting people know that a verdict was imminent. People flowed into the room, filling the empty seats. Steinberg’s brother rushed in and took a spot at the front. His wife sat between her parents, clutching both of their hands.

  Berke was looking less hopeful. The verdict had come down relatively fast, which was usually bad news.

  The jury filed into the room at 3:15 P.M. and took their seats in the jury box. Then, out of nowhere, a scream rang out. Steinberg had slumped forward in his chair, unconscious. It was his wife, Liz, who had screamed, and she reached out for her husband over the heavy oak barrier separating the spectators from the well of the courtroom. She was sobbing. Steinberg’s mother started to cry as well. Berke had his arm around Steinberg, trying to cradle his head.

  “Okay, let’s get the jury out,” said Judge Richard Sullivan, jumping out of his chair.

  The jurors were ushered out of the room. They had already handed over the envelope containing their decision to Sullivan’s clerk. The prosecutors looked stricken. The trial had not gone smoothly for the government, and the prospect of an embarrassing loss was looming. Steinberg’s friends and relatives, meanwhile, looked like they were praying. His mother and mother-in-law clung to one another in the first row, swaying back and forth.

  After several minutes of silence during which Steinberg was tended to by the court nurse, he resumed his seat at the defense table. The jurors came back into the room, their eyes fixed on the floor in front of them.

  It appeared that Steinberg had had a premonition. The jury found him guilty on all counts.

  CHAPTER 16

  JUDGMENT

  The Christmas holidays were not relaxing for Arlo Devlin-Brown. He was living in his office, preparing exhibits, going over witness lists, staying until 10 P.M. before trudging home to the Upper West Side, where he lived with his wife and two children. He was deep into preparations for the Mathew Martoma trial, which was starting right after New Year’s. He knew the government had a strong case, but he didn’t want to be overconfident.

  No one in the U.S. Attorney’s Office could quite believe that it had come to this, with Martoma going to trial rather than cooperating. The hope among the prosecutors was that with Martoma suddenly facing a long, public court proceeding, he would finally succumb to the pressure to flip and help them make a case against Cohen.

  In late December 2013, a few days after Steinberg was convicted, Devlin-Brown’s phone rang. Martoma’s lawyer, Richard Strassberg, was on the line. Strassberg was calling to make an offer—one that he wanted the prosecutor to seriously consider. Devlin-Brown caught his breath for a moment. Maybe this was it, the call they had all been waiting for. Maybe Martoma was ready to talk.

  “I cannot represent that Mat had agreed to this,” Strassberg began. “But would you potentially be interested in a guilty plea to a 371 with a five-year cap?”

  Fuck, Devlin-Brown thought.

  Martoma wasn’t going to cooperate. “371” was a reference to the conspiracy statute in the criminal code. Strassberg was trying to find out whether the U.S. Attorney’s Office might agree to let Martoma plead guilty to a charge of conspiracy to commit fraud, the lowest of the charges he faced, and a maximum of five years in prison. It was not a suggestion that Martoma might help them, only that he might plead guilty to get a reduced sentence. Strassberg was eager to try the case, but he knew that the trial would be excruciating for Martoma’s family, sort of like watching their loved one being waterboarded in public. The odds were against them. A last-minute deal would spare them weeks of stress and humiliation.

  Devlin-Brown couldn’t tell how serious the proposal was, especially if Strassberg was saying that Martoma hadn’t even agreed to it yet. Bharara was unlikely to go for it, anyway. The news that this was
Martoma’s final offer would be a crushing disappointment to everyone in the office. Leaving aside the fact that it was not at all what Bharara had been hoping for, U.S. Attorneys didn’t like to make favorable deals with defendants on the eve of a trial. It looked bad. Judges didn’t like it. And on a personal level, Devlin-Brown found it irritating. He and his colleagues had spent months working seven days a week preparing for what was expected to be one of the most high-profile trials of the year. Why hadn’t Strassberg approached him with this idea sooner? Still, he agreed to discuss the offer with the higher-ups in the office. That afternoon, he and the securities chiefs talked it over.

  The next day, Devlin-Brown called Strassberg back. The answer was no. There would be no deal. They were going to trial.

  On January 7, 2014, Mathew and Rosemary Martoma arrived at the courthouse by chauffeured SUV. A blizzard had left mountains of snow on the street, and Rosemary navigated the slippery sidewalk in four-inch heels. The trial was expected to go on for several weeks, so they had pulled their kids out of school and booked a suite at the Intercontinental Hotel near Times Square so the family could be together. Mathew and Rosemary’s arrival at the courthouse was documented by a pack of news photographers and TV cameras.

  Shortly before they were supposed to begin opening statements two days later, Roberto Braceras, Strassberg’s partner at Goodwin Procter, stood behind the defense table facing the judge, trying not to lose control of his anger. In one hand he held that day’s business section of The New York Times. His hand was trembling. On the front page was a headline: “Ex-SAC Trader Was Expelled from Harvard Law School.”

  For several weeks the two sets of lawyers had been waging a fierce battle behind the scenes. And now it was splashed all over the newspaper.