Danielle Chiesi, the former beauty queen accused of earning more than $4 million by trading on inside information as part of the Galleon Group LLC hedge fund scandal, will plead guilty, a court clerk said.
Chiesi, who worked as a consultant for New Castle Funds LLC, is scheduled to appear today at 1 p.m. in Manhattan federal court, according to the office of U.S. District Judge Richard Holwell. She was arrested in October 2009 along with Galleon Group co-founder Raj Rajaratnam, who faces an insider-trading trial next month and denies wrongdoing. Chiesi was to go on trial later this year.
Chiesi, 45, and Rajaratnam, 53, are charged with illegally using tips from company executives, hedge-fund officials and other insiders to earn millions of dollars. Should Chiesi cooperate with authorities, prosecutors may gain additional evidence against Rajaratnam. The extent of any cooperation may be made known at today’s plea hearing.
“The big question will be whether the plea includes a cooperation component,” said Jacob Frenkel, a former prosecutor and lawyer with the Securities and Exchange Commission who is not involved in the case. “If it does, that could be a silver bullet in the government’s case” against Rajaratnam, he said.
Alan Kaufman, a lawyer for Chiesi, and Ellen Davis, a spokeswoman for U.S. Attorney Preet Bharara, declined to comment. Jim McCarthy, a spokesman for Rajaratnam, didn’t have an immediate comment.
The Galleon Group probe has expanded since October 2009 to encompass other hedge funds, technology companies and so-called expert-networking firms across the U.S. Almost three dozen people have been arrested, and more than a dozen have pleaded guilty.
Of the six people arrested on Oct. 16, 2009, in what prosecutors called the largest insider-trading case involving hedge funds, all but Rajaratnam will have pleaded guilty after today.
Among them are Mark Kurland, a co-founder of New York-based New Castle Funds, who was sentenced to 27 months in prison, and Robert Moffat, a former International Business Machines Corp. senior vice president who got a six-month prison term.
Moffat admitted to having had an “intimate relationship” with Chiesi, who “played him” to obtain tips. Moffat said he told Chiesi about disappointing sales of IBM servers, a pending restructuring at chipmaker Advanced Micro Devices Inc. and earnings at Lenovo Group Ltd., a maker of personal computers.
Chiesi in November lost a bid to toss out secret government recordings of her conversations. Among them is a call on Aug. 15, 2008, in which she complained that in pursuit of insider tips she would have to meet Moffat “on f-----g Sunday at my mom’s house,” according to a criminal complaint against her.
Chiesi joined New Castle, which was started in 1995 as part of Bear Stearns Cos.’ asset-management unit, in 1996. She previously worked for two years at New York-based investment firm Arnhold & S. Bleichroeder as a vice president in investment banking and research sales, according to New Castle’s marketing documents.
Before that, she worked at Furman Selz LLC and Mabon Nugent & Co. Chiesi graduated from the University of Colorado with a bachelor’s degree in economics, according to the documents.
A former teenage beauty queen, Chiesi used her sexuality to build sources at male-dominated technology companies, Deborah Stapleton, president of Stapleton Communications Inc., an investor-relations company in Palo Alto, California, said in a November 2009 interview.
“It amazes me that grown, wealthy, successful, hardworking men fell for that,” Stapleton said at the time. “She bragged about her contacts in public,” Stapleton said. “She was like a teenager who wanted everyone to know she knew some rock star.”
The case is U.S. v. Rajaratnam, 1:09-cr-1184, U.S. District Court, Southern District of New York (Manhattan).