Lawyers for Level Global Investors LP co-founder Anthony Chiasson and ex-Diamondback Fund Manager Todd Newman rested their cases after questioning an FBI agent who’s been central to the U.S. crackdown on insider trading.
Chiasson and Newman have been on trial in Manhattan federal court since Nov. 7, accused of trading on inside information in Dell Inc. (DELL) and Nvidia Corp. (NVDA) They’re charged with securities fraud and conspiracy. Prosecutors say the men, who pleaded not guilty, earned more than $67 million on trades based on illicit tips provided by analysts who worked for them.
Prosecutors also rested their case yesterday. U.S. District Judge Richard Sullivan, who is presiding over the trial, told jurors to return to court today to hear closing arguments from both sides.
David Makol, a Federal Bureau of Investigation securities fraud agent in New York for more than nine years before being transferred to Boston this year, told jurors yesterday he has persuaded dozens of people to cooperate with the government.
Makol worked with three men who pleaded guilty to participating in the insider-trading case and agreed to testify, he said. They are ex-Diamondback analyst Jesse Tortora, ex-Level Global Analyst Spyridon “Sam” Adondakis and ex-Neuberger Berman analyst Sandeep “Sandy” Goyal, he said. Adondakis took the stand, saying he passed nonpublic information to Chiasson while Tortora testified he passed inside tips to Newman.
“I was overseeing the entire investigation,” Makol testified. “Basically what you said, getting someone to cooperate against other folks.”
Newman’s lawyer, Steve Fishbein, called Makol in an attempt to show jurors what he alleges are inconsistencies between Tortora’s trial testimony and Makol’s notes of interviews with Tortora when he first agreed to cooperate.
Chiasson’s lawyer, Reid Weingarten, also questioned Makol yesterday about notes the agent took of statements Adondakis made to agents and prosecutors about what he told Chiasson and David Ganek, the co-founder of Level Global.
Makol said he first approached Adondakis in October 2010 when he walked up to the former analyst in Central Park and asked him to cooperate with the government’s investigation into insider trading at hedge funds and insiders at technology companies.
“It was about other friends that were in this circuit that are exchanging information,” Makol said, describing the alleged scheme. “It was about this expert network that we are looking into. We had a massive investigation on. We knew Mr. Tortora could provide a lot of information.”
Fishbein, Newman’s lawyer, asked Makol about what kind of instructions he’d given Tortora when asking him to make consensually recorded calls with Danny Kuo, a member of the conspiracy who has since pleaded guilty to insider trading. He asked the agent if he had instructed the cooperator to use terms like “big fish” and make Newman the “fall guy” during recorded calls.
Makol said he never suggested those terms to Tortora and said agents suggest to cooperators different “scenarios” to elicit conversation from people they engage in conversation.
“You would never as an FBI agent want to suggest to a cooperating witness that they blame somebody else for something that that somebody else didn’t do, right?” Fishbein asked.
“That is not correct,” Makol replied. “Under FBI policy we are allowed to create scenarios in which we will prompt certain responses by certain people, so if one of those -- if it is an appropriate situation, then you could potentially apply that.”
Sullivan last week ruled that Michael Steinberg, an SAC Capital Advisors LP fund manager, and David Ganek, who co- founded Level Global with Chiasson, are unindicted co- conspirators in the insider-trading scheme with Newman and Chiasson.
The ruling allows prosecutors to show jurors e-mails involving Ganek and Steinberg during closing arguments on the premise that they were statements that furthered the alleged insider-trading conspiracy. Steinberg and Ganek haven’t been charged with a crime.
Yesterday, Weingarten questioned Makol about what Adondakis first told agents and prosecutors in the office of Manhattan U.S. Attorney Preet Bharara in November 2010. He confronted him with a memo that Makol’s partner, James Hinkle, made of the session.
“Is it not true that Mr. Adondakis said to you and to the government that ‘Chiasson and Ganek were both interested in the Dell information when Adondakis told them because the information came directly from contacts at Dell?’” Weingarten asked.
“Yes,” Makol said. “Both Chiasson and Ganek were both interested in the Dell information,” Makol said. “When Mr. Adondakis told them about the Dell information, they were interested. The information was coming from someone inside Dell.”
Weingarten pressed Makol to explain what was meant by the statement in the FBI memo that said “both Chiasson and Ganek.”
Makol replied, “I recall from that meeting that there was some confusion about this paragraph because I know coming away from that meeting that I didn’t write the report, I was certain that Mr. Adondakis was not saying that he specifically told Mr. Ganek that the information was coming from someone at Dell, so it was confusing. Actually, the way I read it, I read it, it makes sense to me. It’s just the wording could have been worded, could have been worded differently so it’s more clear.”
The case is U.S. v. Newman, 1:12-cr-00121, U.S. District Court, Southern District of New York (Manhattan).
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