Nov. 6 (Bloomberg) -- Joseph Contorinis, a former money manager for the Jefferies Paragon Fund, was indicted by a federal grand jury on fraud charges in what prosecutors said was a $7.2 million insider-trading ring.

The indictment by the Manhattan grand jury follows Contorinis’s February arrest. Another person charged with him, Nicos Stephanou, who was an associate director of mergers and acquisitions at UBS AG’s London office, pleaded guilty in May to seven felony counts that he passed information about bids for Albertson’s Inc., the Boise, Idaho-based grocery store chain. Stephanou’s friend, George Paparrizos, also pleaded guilty.

“Stephanou had access to and learned material information about merger and acquisition transactions,” the indictment says. “Stephanou provided Contorinis, and others known and unknown, with UBS insider information” from 2004 to 2006.

The conspiracy and securities fraud indictment comes as federal prosecutors step up their scrutiny of insider trading. Prosecutors in Manhattan yesterday announced charges against 14 people in a wide insider ring and previously accused six others, including Galleon Group founder Raj Rajaratnam, of trading on secret tips. Today’s indictment isn’t related to the Rajaratnam case.

An indictment marks the formal commencement of the case against Contorinis. Prosecutors will now be required to provide him with details of their case.

Contorinis’s attorney, Ted Wells, and Stephanou’s lawyer, Christopher Morvillo, didn’t immediately return calls. Paparrizos’s lawyer, Russell Neufeld, declined to comment.

Charges against another defendant, Ramesh Chakrapani, a managing director of Blackstone Group LP’s takeover advisory unit, was dismissed in April, according to court records.

Albertson’s

According to the indictment, Contorinis used secret tips to trade in shares in Albertson’s before its acquisition. Zurich- based UBS, Switzerland’s largest bank, represented a private- equity firm in the deal, the indictment says.

Stephanou, a citizen of Cyprus who lives in London, was arrested at Newark Liberty International Airport in New Jersey on Dec. 27. He was among UBS advisers assigned to help Cerberus Capital Management LP prepare bids with a group of investors for Albertson’s in 2005 and 2006, the Securities and Exchange Commission said in a related civil lawsuit.

He tipped at least three people to developments in the deal, including Paparrizos and ex-colleague Contorinis, the agency said. The pair had both worked as analysts at the New York office of Credit Suisse First Boston in 1998 and 1999, the agency said.

The SEC also announced today that Stephanou and Paparrizos had settled the regulator’s lawsuit. Stephanou will pay more than $500,000 in disgorgement of profits and interest, and Paparrizos will pay more than $25,000. They neither admitted nor denied wrongdoing, the agency said.

The case is U.S. v. Contorinis, 09-maj-289, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: David Glovin in U.S. District Court in New York at 9245 or dglovin@bloomberg.net.

Last Updated: November 6, 2009 17:58 EST