Diamondback manager pleads guilty in insider case

Markets Reuters

NEW YORK (Reuters) - A former portfolio manager at the Connecticut hedge fund Diamondback Capital Management has pleaded guilty to fraud and conspiracy, the latest defendant to admit wrongdoing in the government's broad probe into hedge fund insider trading.

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Anthony Scolaro, the former portfolio manager, admitted to one count of securities and fraud and one count of conspiracy on December 10, 2010, according to documents made public on Tuesday.

Scolaro entered his plea before U.S. District Judge William Pauley in Manhattan federal court, court records show.

William Brodsky, a partner at Fox Horan & Camerini representing the defendant, did not immediately return calls and an email seeking a comment.

Prosecutors said Scolaro received inside information from Franz Tudor, a trader at Schottenfeld Group LLC, regarding a possible acquisition by private equity firm TPG Capital of the Canadian company Axcan Pharma Inc.

Scolaro was accused of then trading in Axcan in October 2007, one month before the acquisition was announced, earning thousands of dollars in profit.

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The defendant, who joined Diamondback in 2005 and was fired in November 2009, is cooperating with federal prosecutors and the FBI, according to his November 12, 2010 plea agreement.

Edgardo Ramos, a lawyer for Tudor, said his client has left the securities industry. He declined further comment.

Scolaro's guilty plea was revealed six months after Diamondback was one of four hedge funds raided by the FBI, as prosecutors expanded their probe to focus on how hedge funds use expert networking firms to gain an investment edge.

The raid appeared to be focused on Todd Newman, a Boston-based portfolio manager who has been put on leave. No charges have been filed against Newman.

A Diamondback spokesman declined to comment on Scolaro's case, which is unrelated to the expert network investigation.

Roughly three dozen people have pleaded guilty to criminal charges since federal prosecutors in New York in October 2009 revealed their wide-ranging probe into insider trading involving hedge funds.

The most prominent defendant, Galleon Group founder Raj Rajaratnam, was convicted on May 11 by a Manhattan federal jury of 14 securities fraud and conspiracy charges.

The case is U.S. v. Scolaro, U.S. District Court, Southern District of New York.

(Reporting by Moira Herbst and Svea Herbst-Bayliss; Additional reporting by Matthew Goldstein; Editing by Tim Dobbyn)