At insider trading trial, U.S. says motive was to "make big money"
Two former hedge fund managers reaped $70.8 million in illegal profits by tapping a "corrupt network" of Wall Street analysts, a U.S. prosecutor said at the start of their insider trading trial on Tuesday.
Todd Newman, who was a portfolio manager at Diamondback Capital Management, and Anthony Chiasson, who co-founded Level Global Investors, were charged in January in a sweep dubbed "Operation Perfect Hedge" by the Federal Bureau of Investigation. More than 70 people have been charged in the government's broad Wall Street trading probe.
Chiasson and Newman are accused of illegally trading ahead of computer maker Dell Inc's earnings reports for the first and second quarters of 2008, netting them profits, respectively, of $57 million and $3.8 million. Chiasson is also accused of netting $10 million in illegal profits ahead of the May 2009 results of chipmaker Nvidia Corp .
Prosecutor Richard Tarlowe told jurors in U.S. District Court in Manhattan that Newman and Chiasson had made huge trades based on confidential company secrets obtained by a close-knit group of research analysts.
"This is a case about how the defendants got secret, confidential information about publicly traded companies," Tarlowe said. "They chose to break the law and to use it anyway. Why? To make big money for themselves and for their hedge funds."
Lawyers for Newman and Chiasson countered that their clients did not know that any of the information was secret because the analysts who provided it had made their stock recommendations appear legitimate.
Several of those analysts have previously pleaded guilty to related insider trading charges. One of the analysts, Jesse Tortora, was expected to testify for the prosecution later on Tuesday.
"What Mr. Newman did not know was that mixed in Mr. Tortora's information... was information that Mr. Tortora now says was obtained improperly," Newman's lawyer, Stephen Fishbein, said in his opening statement.
Tortora, who worked for Newman as an analyst, made his work appear like "legitimate, honest research," Fishbein said.
Former Level Global analyst Spyridon Adondakis, who has also pleaded guilty, is expected to testify at a later date.
Together with Sandeep "Sandy" Goyal - also a government cooperator - and others, the analysts formed a "corrupt network of professionals who chose to break the rules," Tarlowe said.
The defendants face one count each of conspiracy to commit securities fraud and multiple counts of securities fraud. If convicted, they could face at least 25 years in prison.
The judge overseeing the case, Richard Sullivan, has denied repeated requests by the defendants to be tried separately.
Jon Horvath, a former analyst at a division of SAC Capital, the hedge fund founded by Steven Cohen, was also arrested along with Newman and Chiasson. Horvath, a technology sector analyst, pleaded guilty in September to insider trading charges and agreed to cooperate with prosecutors.
Tuesday's trial, which could last more than five weeks, follows the sentencing last month of one-time Wall Street luminary Rajat Gupta on insider trading charges.
Gupta was found guilty by a U.S. jury of leaking Goldman Sachs boardroom secrets to his friend Raj Rajaratnam, and sentenced to two years in prison. Rajaratnam, founder of the Galleon Group hedge fund, received an 11-year prison sentence last year, one of the longest for insider trading.
The case is US v. Todd Newman et al, U.S. District Court for the Southern District of New York, No. 12-cr-121.
(Reporting By Basil Katz; Editing by Claudia Parsons)