Published December 17, 2012
Two former hedge fund managers were convicted on Monday of illegal trading in Dell Inc stock based on secret information supplied by research analysts, the latest in a string of Wall Street insider-trading convictions.
A federal jury in Manhattan found Todd Newman, a former portfolio manager at Diamondback Capital Management, and Anthony Chiasson, co-founder of Level Global Investors, guilty on all counts of conspiracy to commit securities fraud and securities fraud.
"Like scores of privileged professionals before them, Newman and Chiasson are finding out the hard way that the opportunity cost of gaining an illegal edge in the market is the loss of one's liberty," U.S. Attorney Preet Bharara said after the verdict.
The two men were charged in January as part of a sweep called "Operation Perfect Hedge" by the Federal Bureau of Investigation. A third defendant in the case, Jon Horvath, a former analyst at a division of hedge fund titan SAC Capital, pleaded guilty to charges related to insider trading before the trial.
"We're going to certainly appeal," Reid Weingarten, a lawyer for Chiasson, said after Monday's verdict, said in the court hall after two full days of deliberations by a jury.
The case helped highlight how a group of fund managers and analysts with ties to billionaire Steven Cohen's SAC Capital have been pursued over insider trading. A top deputy of Cohen's, Michael Steinberg, is an unindicted co-conspirator in the case.
Last month, in a different case, federal prosecutors charged Mathew Martoma, a former employee at a SAC Capital division, with helping Cohen's firm avoid losses and reap profits of $276 million.
Prosecutors have not accused Cohen of wrongdoing, and after Martoma's arrest SAC said it was confident that both Cohen and the firm "have acted appropriately." The U.S. Securities and Exchange Commission has notified the hedge fund that the agency was considering filing civil charges against it, according to a disclosure SAC made recently to investors.
The two managers were accused of using confidential information in trades of Dell stock ahead of the computer maker's earnings reports for the first and second quarters of 2008. Prosecutors alleged that Chiasson earned $57 million on those trades while Newman netted $3.8 million.
Both were also accused of illegally trading in chipmaker Nvidia Corp. Chiasson was accused of earning $10 million in illegal profits on trades ahead of Nvidia's May 2009 results. Prosecutors offered evidence at trial that Newman had $78,000 in gains on Nvidia.
Prosecutors said the bets were made based on secret information obtained by a group of analysts who formed a "corrupt network" that swapped non-public information obtained from themselves and others.
But defense lawyers contended that neither Newman nor Chiasson knew the information was secret because the analysts made it appear their stock recommendations were legitimate.
Several analysts, including former Diamondback analyst Jesse Tortora and former Level Global analyst Spyridon Adondakis, pleaded guilty. Both Tortora and Adondakis, who pleaded guilty in January, testified on behalf of the government.
The government's wide-ranging investigation devastated Newman's and Chiasson's hedge funds. Level Global was closed in 2011 following an FBI raid. Diamondback told its clients on Dec. 6 it planned to close.
Since August 2009, federal prosecutors in New York have charged 75 people with insider trading and secured convictions against 71 of them.
The case is US v. Todd Newman et al, U.S. District Court for the Southern District of New York, No. 12-cr-121.