A high-ranking trader at SAC Capital -- the hedge fund run by billionaire Steven Cohen that is at the center of a federal investigation into insider trading -- was charged with securities fraud Friday, according to federal authorities.
Michael Steinberg, a portfolio manager at SAC Capital, was charged with five counts -- including securities fraud and conspiracy to commit securities fraud -- for allegedly short-selling computer stocks Dell (DELL) and Nvidia (NVDA) based on inside information, according to documents from the office of the U.S. Attorney for the Southern District of New York.
He pleaded not guilty in federal court, surrendered his passport and posted bail of $3 million. His next court date is May 3.
"As alleged, Michael Steinberg was another Wall Street insider who fed off a corrupt grapevine of proprietary and confidential information cultivated by other professionals who made their own rules to make money," said U.S. Attorney Preet Bharara, in a statement.
Steinberg was arrested at 6 a.m. ET at his Manhattan residence, according to an FBI spokesman.
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"Mr. Steinberg was at the center of an elite criminal club, where cheating and corruption were rewarded," said FBI Assistant Director George Venizelos, in a statement.
But his lawyer, Barry Berke, insisted that Steinberg is an innocent man who conducted proper trades.
"Michael Steinberg did absolutely nothing wrong," Berke said in an e-mail to CNNMoney. "At all times, 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."
"Caught in the crossfire of aggressive investigations of others, there is no basis for even the slightest blemish on his spotless reputation," Berke added.
Related: SAC Capital pays $614 million for insider trading
The charges of securities fraud follow on the heels of a settlement, reached earlier this month, between SAC Capital and the Securities and Exchange Commission, the largest settlement in SEC history.
On March 15, two units of hedge fund SAC Capital agreed to pay $614 million to the SEC to settle charges of insider trading. The settlement included hedge fund advisory firm CR Intrinsic Investors, which agreed to pay about $600 million in fines for making $275 million in "illegal profit or avoided losses" from insider trading related to Irish biotech Elan (ELN).
It also included Sigma Capital, which agreed to pay $14 million for trading "based on nonpublic information" on financial results of Dell and Nvidia.
Related: Read federal indictment documents here
The SEC said that Steinberg worked at Sigma, where he allegedly received "illegal tips" from analyst Jon Horvath, who was named by the U.S. Attorney as a co-conspirator. The SEC said that Steinberg's "illegal conduct" netted more than $6 million in profits and avoided losses.
The investigation focused on conversations between Steinberg and Horvath that allegedly occurred in 2008. The federal indictment accuses Horvath of telling Steinberg that an insider at Dell warned him the company was going to miss on its earnings, prompting Steinberg to sell short 30,000 shares before the stock plunged 13%.
Horvath allegedly e-mailed Steinberg, "Please keep to yourself as obviously not well known," to which Steinberg allegedly replied, "Yes normally we would never divulge data like this, so please be discreet."
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The U.S. Attorney's office said that Horvath had previously pleaded guilty to charges of securities fraud as part of a cooperation agreement. Horvath allegedly obtained his inside information from a circle of four former research analysts who have also pleaded guilty, according to the Attorney's office.
When the settlement -- which requires a federal judge's approval -- was announced, the SEC said that it might still be investigating people at the firm.
Cohen, the founder of SAC Capital, has not been charged, though federal investigators have been circling him for months, sniffing around for signs of insider trading and making peripheral strikes on his employees.
Last November, federal prosecutors charged Mathew Martoma, portfolio manager of CR Intrinsic Investors, with selling and short-selling shares of Elan and Pfizer (PFE) subsidiary Wyeth.
-- CNN's Kirsten Swanson contributed to this story.
