SAC Capital Advisors LP fund manager Michael Steinberg was indicted by a federal grand jury on five counts of conspiracy and securities fraud as the U.S. government’s wide-ranging probe of insider trading at the $15 billion firm got one step closer to founder Steven A. Cohen.

Steinberg, 40, worked at SAC’s Sigma Capital Management unit and is the most senior SAC official to be charged. He was one of 15 portfolio managers handling technology, media and telecommunications stocks before being placed on leave in September, said a person with knowledge of the matter. He is to appear in New York federal court later today and faces as long as 20 years in prison if convicted of the most serious counts.

The indictment unsealed today alleged he traded on insider tips obtained from convicted SAC technology analyst Jon Horvath. U.S. District Judge Richard Sullivan in Manhattan in December ruled Steinberg was an uncharged co-conspirator in a $72 million scheme that also involved Level Global Investors LP co-founder Anthony Chiasson, ex-Diamondback Capital Management LLC portfolio manager Todd Newman and analysts who obtained and swapped illegal tips about technology companies.

The arrest of Steinberg, taken into custody by FBI agents at 6 a.m. at his Manhattan home, FBI spokesman Peter Donald said, is the latest development in a recent acceleration of the government’s five-year probe. According to internal e-mails and two people familiar with the matter, Steinberg and SAC fund manager Gabriel Plotkin both were recipients of inside information Horvath passed to them. Plotkin hasn’t been accused of wrongdoing.

Indictment

Steinberg was accused of being part of a conspiracy that began in late 2007 and continued until 2009. The U.S. said he received and traded on illegal tips from Horvath, a subordinate, on Dell Inc. and Nvidia Corp.

Steinberg was added to an existing indictment that alleged he and Horvath were part of a group of analysts and fund managers who swapped and traded on nonpublic information they obtained from insiders at technology companies. The case is being presided over U.S. District Judge Richard Sullivan.

The U.S. Securities and Exchange Commission, which sued Steinberg today, said earlier this month that Horvath funneled nonpublic information on technology stocks to two unidentified portfolio managers at Cohen’s hedge fund. Both men then traded on the information, reaping more than $6 million for SAC Capital units. The men were Steinberg and Plotkin, according to the SAC e-mails.

Steinberg, who worked at SAC Capital since 1997, is one of nine current or former employees of the hedge fund to be tied by U.S. authorities to insider trading. Cohen, who has denied any wrongdoing, hasn’t been charged or sued by the government.

In November, the U.S. indicted Mathew Martoma, a former fund manager for SAC’s CR Intrinsic Investors unit, in what prosecutors called the biggest insider-trading scheme in history. Manhattan U.S. Attorney Preet Bharara said Martoma helped SAC make $276 million on illegal tips about an Alzheimer’s drug by trading in shares of Elan Corp. and Wyeth LLC. He has pleaded not guilty to the charges and is awaiting trial.

On Leave

Steinberg has had the longest tenure at SAC of those the U.S. has tied to its insider-trading probe. Barry Berke, Steinberg’s lawyer, said today that his client is “caught in the crossfire of aggressive investigations.”

“Michael Steinberg did absolutely nothing wrong,” the attorney said in a statement. “His trading decisions were based on detailed analysis as well as information that he understood had been properly obtained through the types of channels that institutional investors rely upon on a daily basis.”

Jonathan Gasthalter, a spokesman for Stamford, Connecticut- based SAC, declined to immediately comment. Ellen Davis, a spokeswoman for Bharara, said in an e-mail the matter is “still sealed,” declining to comment further.

Yesterday, a Manhattan federal judge expressed skepticism at a provision of a $602 million settlement by SAC with the SEC. SAC will have to wait to learn if the proposed insider trading accord can go forward, after U.S. District Judge Victor Marrero raised questions over whether the hedge fund should be allowed to avoid admitting it did anything wrong as part of the deal.

The accord would resolve SEC claims that SAC and CR Intrinsic profited from alleged illegal tips received by Martoma about the Alzheimer’s drug. As part of the March 15 agreement, the SEC sued Sigma, describing Horvath’s passing of inside information and expanding what the U.S. had previously said about the insider trading at SAC.

Jon Horvath

Horvath pleaded guilty in September, admitting that he provided illegal tips to his portfolio manager, who then traded on them.

Horvath said he and his co-conspirators obtained material nonpublic information on Dell in August 2008 and about Nvidia in May 2009 from insiders at the two technology companies.

While Horvath never named Steinberg in court, prosecutors alleged during Chiasson and Newman’s trial that Steinberg was the recipient of Horvath’s tips. The tips earned Horvath’s hedge fund manager about $1.4 million, prosecutors said. The SEC said in the March 15 complaint that the analyst’s tips on technology stocks reaped the fund more than $6 million.

Horvath, who worked at SAC’s Sigma unit from 2006 to 2011, is cooperating with the insider-trading investigation by Bharara’s office and the Federal Bureau of Investigation in New York. Steve Peikin, Horvath’s lawyer, declined to comment.

During Plea

Horvath told the judge during his plea that he “agreed to obtain and share information about public companies.”

“In each instance I provided the information to the portfolio manager I worked for and we executed trades in the stocks based on that information,” Horvath told Sullivan.

During Chiasson and Newman’s trial, assistant U.S. attorneys Antonia Apps, Richard Tarlowe and John Zach provided evidence including SAC e-mails that they said showed the fund manager’s state of mind about the information he received from Horvath.

Two days before Dell was set to report second-quarter 2008 earnings, Horvath e-mailed Steinberg and another portfolio manager to warn that the computer maker would miss earnings estimates.

Second Hand

“I have a 2nd hand read from someone at the company,” Horvath said in the Aug. 26 e-mail, which provided details on gross margins, expenditures and revenue. “Please keep to yourself as obviously not well known.”

Steinberg replied, “Yes normally we would never divulge data like this, so please be discreet. Thanks.”

Judge Sullivan concluded in December that e-mail and instant messages he reviewed showed that Steinberg could have known information he used for trades came from insiders.

“The e-mails that were relayed to Steinberg do indicate to me that he understands the source of the information that he’s getting and he’s trading on it,” Sullivan wrote. “All of that indicates this is inside information from the company that’s not available anywhere else.”

Horvath was one of eight analysts and portfolio managers charged in January 2012 with being part of what Bharara described as “a tight-knit circle of greed” whose members trafficked in confidential information from 2007 to 2009.

Pleaded Guilty

Six of those charged in the case have pleaded guilty and agreed to cooperate with the U.S.

Horvath pleaded guilty just weeks before he was set to go on trial with Chiasson and Newman. The two fund managers were convicted in December by a federal jury in Manhattan and are scheduled to be sentenced by Sullivan on April 19.

Sullivan ruled during Chiasson and Newman’s trial that David Ganek, a Level Global co-founder, was also an uncharged co-conspirator in the case. Both Chiasson and Ganek worked at SAC Capital before starting Level Global.

Ganek hasn’t been charged with any crime. Ganek’s attorney, John Carroll, said in December when asked about Sullivan’s ruling that “both the U.S. attorney and the SEC have been investigating this case for two years and neither has found reason to charge my client.”

Others Charged

Two others who were charged with being part of the scheme pleaded guilty and testified at the trial as prosecution witnesses.

Jesse Tortora, a former analyst who worked for Newman, and Spyridon “Sam” Adondakis, who once worked as an analyst for Chiasson, described for the jury how they swapped nonpublic information obtained from insiders at technology companies. They said they then passed on that information to their portfolio managers who traded on the illegal tips.

At a December hearing outside the jury’s presence during Chiasson and Newman’s trial, Sullivan read aloud an e-mail from Horvath to Steinberg that mentions “JT,” which prosecutors said was a reference to Jesse Tortora.

“P.S. Keep the Dell stuff, especially on the down low,” Horvath said in the e-mail, “because JT asked me specifically to be extra sensitive with this information.”

Apps told the judge that Steinberg took a short position in Dell stock, betting that it would drop, “in a matter of minutes” after receiving Horvath’s message.

“Why would you need to keep this on the ‘down low’ if this stuff is from investor relations?” Sullivan said, adding: “That doesn’t look good.”

The case is U.S. v. Steinberg, U.S. District Court, Southern District of New York (Manhattan).