A former Level Global Investors LP analyst testified that he repeatedly relayed nonpublic information about Dell Inc. (DELL) to co-founder Anthony Chiasson, allowing the fund to make $63 million.
Spyridon “Sam” Adondakis, 41, a former analyst who worked for Chiasson at the New York-based fund, told a jury today in Manhattan federal court that he obtained nonpublic information on earnings, gross margins and revenue from a Dell insider that was passed through a friend, Jesse Tortora, an ex-analyst at Diamondback Capital Management LLC.
Based on the illicit tips, Chiasson earned $10 million in mid-2008, Adondakis testified. The U.S. alleges that a second trade on Dell in August 2008 gave the fund $53 million in illegal profit.
Chiasson and Todd Newman, a former portfolio manager for Stamford, Connecticut-based Diamondback, are on trial for allegedly trading on inside information in Dell and Nvidia Corp. (NVDA) Both men have pleaded not guilty. The U.S. alleges that the men earned more than $67 million on those trades.
Adondakis, who told the jury he has a master’s degree from the Wharton School of the University of Pennsylvania, said he told Chiasson and Greg Brenner, another supervisor at the fund, in early August of 2008 that his contact at Dell informed him that, while the firm’s revenue would be in line, gross margins would be lower than expected. The news could be used to bet against the stock by holding a large short position, he said.
“Brenner mentioned that if this information was right, it would be the best idea of the fund and it would be a very profitable position for the firm,” Adondakis testified.
Adondakis said Brenner and Chiasson took the analysis he had written based on the Dell information to the office of David Ganek, the fund’s co-founder. There’s no indication that Ganek knew the information was nonpublic and Adondakis testified he couldn’t hear the conversation.
“Mr. Chiasson and Brenner had the analysis I provided to them in their hands and went into Mr. Ganek’s office,” Adondakis said, referring to a glass-walled office located in a corner of the building.
Chiasson later led a meeting of the fund’s technology group telling them they would increase a short position in Dell stock.
“He informed members of the funds tech group that we had a large position in Dell, a short position, and it was based on a contact and that we were not to discuss the position outside of the fund,” said Adondakis, who has pleaded guilty to insider- trading charges.
Brenner and Ganek haven’t been accused of wrongdoing by the U.S. Reached for comment about Adondakis’s testimony, Ganek’s lawyer, John Carroll, said in a statement, “With the trial under way it speaks for itself that my client hasn’t been charged with any wrongdoing. My client is outraged that Sam Adondakis was passing off as his own work what he now reveals was inside information. So to be clear, my client was never aware that this admitted liar and criminal was trafficking in inside information.”
Adondakis said he met Tortora while doing equity research of technology companies while working at Prudential Financial Inc. (PRU) in San Francisco. After joining Level Global, he said Tortora kept in touch with contacts both men had at Dell.
Adondakis said his arrangement with Tortora began in 2007 when he joined Level Global, saying he told to Chiasson how he had a “contact” at Diamondback who was obtaining nonpublic information on Dell from an insider at the company. Adondakis told jurors Chiasson knew that Tortora was sharing his insider tips with Newman.
“I explained to him the full chain of command,” Adondakis said.
“How did Mr. Chiasson react?” Assistant U.S. Attorney John Zach asked.
“He seemed interested, he wanted to see if we could use this information to make forecasts and to use it to make money,” Adondakis said.
Today, jurors were shown dozens of instant messages and e- mails that Chiasson sent Adondakis, including an Aug. 20, 2007, exchange between the two men in which Chiasson asked, “Any luck with DELL?”
“Didn’t hear back,” Adondakis replied.
“Cool,” Chiasson answered, “Where did Jesse land?”
“Diamondback,” Adondakis answered.
“Is he working with Newman?”
“Yep, that’s the guy,” Adondakis answered.
Adondakis said he also accessed expert-networking consultants including employees at Dell and Nvidia who provided him with nonpublic information. He used the information to double-check the accuracy of his insider, Adondakis said.
“I was utilizing them for finding company insiders willing to talk about their companies,” he said. “So we could make money on their stocks by trading on them.”
Zach showed jurors Level Global’s compliance manual and the firm’s rules against insider trading. It warned employees to avoid asking for nonpublic information when speaking to expert- networking consultants and use calls “to deepen our understanding or better color our mosaic.”
The manual concluded by telling employee that if they had any questions about compliance, their queries “should be directed to the chief compliance officer, the director of compliance and Anthony Chiasson.”
Of the eight people charged in this case, six have pleaded guilty to insider trading and are cooperating with the U.S., including Tortora and Adondakis.
Tortora testified as a prosecution witness last week. Adondakis will resume his direct testimony tomorrow when the trial resumes before U.S. District Judge Richard Sullivan.
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