Seven people were charged in Manhattan federal court with securities fraud and conspiracy as part of a five-year investigation of insider trading at hedge funds by the FBI and the Justice Department.
Prosecutors said the alleged scheme, which involved trades in Dell Inc., netted $61.8 million in illegal profits. Among those charged are Level Global Investors LP co-founder Anthony Chiasson, who along with three other suspects was taken into custody today, according to two people familiar with the matter.
Todd Newman, formerly of Diamondback Capital Management LLC, was arrested in the Boston area by the Federal Bureau of Investigation, and Jon Horvath was detained in New York, according to one of the people, who asked not to be identified because they weren’t authorized to speak publicly. Chiasson turned himself in, the second person said.
Also charged today was Danny Kuo, who was arrested in Southern California. Spyridon “Sam” Adondakis, Jesse Tortora and Sandeep Goyal have pleaded guilty and are cooperating with the probe, according to a person familiar with their cases.
Goyal, a former junior technology analyst at Neuberger Berman, admitted to passing material nonpublic information to a hedge fund, according to Alexander Samuelson, a company spokesman. Goyal left the firm this month.
Justine Harris, a lawyer for Adondakis; Gregory Morvillo, who represents Chiasson; Jessica Margolis, who represents Goyal; Alfred Pavlis, who represents Newman; and Ralph Caccia, who represents Tortora, didn’t immediately return phone messages seeking comment. Steven Peikin, who represents Horvath, declined to comment. A lawyer for Kuo couldn’t be immediately determined.
Manhattan U.S. Attorney Preet Bharara said today at a press conference in New York that the defendants formed a “criminal club” that reaped almost as much in illegal profits as the central figure of the nationwide probe of hedge funds, technology companies and so-called expert networking firms.
The five-year insider-trading probe has resulted in charges against at least 56 people. More than 50 have pleaded guilty or been convicted after trial since 2009, including Galleon Group LLC co-founder Raj Rajaratnam, who was found guilty in May and is serving 11 years in prison, the longest ever for insider trading. The U.S. said he earned $72 million in illegal gains.
From 2008 to 2009, Horvath, Kuo, Tortora and Adondakis exchanged inside information about publicly traded technology companies, prosecutors said. According to the allegations, an unnamed Dell insider passed inside financial information to Goyal, who in turn tipped Tortora. Tortora shared the information with Horvath, Kuo and Adondakis, according to a criminal complaint by FBI Special Agent David Makol.
Tortora passed inside information on Dell to Newman before the computer maker announced its first- and second-quarter 2008 earnings, according to Makol. Newman made $3.8 million in illegal profits for his hedge fund from trading on the information, according to the complaint.
Chiasson was tipped about Dell by Adondakis, according to Makol. Chiasson and others at the hedge fund allegedly traded on the tips for $57 million in illegal profits.
Goyal worked for Dell at its corporate headquarters in Round Rock, Texas, from 2003 until the summer of 2006, prosecutors said.
In November 2010, FBI agents from New York and Boston executed search warrants at the offices of Level Global and Diamondback, hedge funds founded by former employees of SAC Capital Advisors LP.
Horvath works at Stamford, Connecticut-based SAC Capital, according to a person familiar with the matter, who asked not to be identified because he wasn’t authorized to speak publicly. A representative of SAC Capital couldn’t be immediately reached for comment.
Level Global told clients last February that it was shutting down -- eight years after David Ganek and Chiasson founded the hedge fund -- because of the U.S. probe.
Steven Goldberg, a spokesman for New York-based Level Global, didn’t return a call seeking comment on the arrests. Steve Bruce, a spokesman for Stamford-based Diamondback, declined to comment immediately.
The Securities and Exchange Commission today filed a civil insider-trading complaint in Manhattan federal court against the seven men, Diamondback Capital and Level Global.
Peter Neiman, of Wilmer Hale, a lawyer for Diamondback Capital, declined to comment on the SEC lawsuit. MaryJeanette Dee, a lawyer for Level Global, didn’t immediately return a voice mail left at her office seeking comment on the suit.
During the trial last year of James Fleishman, a former executive at Primary Global Research LLC, witnesses testified that he helped employees of technology companies pass nonpublic information to his firm’s fund manager clients. Fleishman was convicted of conspiracy charges related to insider trading.
A witness at Fleishman’s trial, Mark Anthony Longoria, a former Advanced Micro Devices Inc. employee, described on the stand how he passed secret tips and other information about his company to fund managers. One of those he identified as a recipient was Adondakis.
Bob Nguyen, a former Primary Global analyst who pleaded guilty and agreed to cooperate with the U.S., testified at Fleishman’s trial that Tortora was a client of Fleishman’s who got nonpublic information about technology companies through the Mountain View, California-based research firm.
Dell Supply Manager
Daniel Devore, a former global supply manager of Dell, pleaded guilty and is cooperating with the U.S. insider-trading investigation.
The criminal complaint against Kuo says he worked at a hedge fund in South Pasadena, California. Whittier Trust Co. lists on its website a Danny Kuo as a vice president and fund manager in the firm’s South Pasadena offices, and says he joined the firm in 2008.
When FBI agents this morning sought to arrest Chiasson at his Manhattan home, they discovered that he had already left, said one of the people familiar with the matter. FBI agents encountered Wall Street Journal reporters at the building, the person said. Adrienne Senatore, a spokeswoman for the FBI’s New York office, declined to comment on the arrests or Chiasson’s absence from his home.
Ellen Davis, a spokeswoman for Bharara, declined to comment on the attempted arrest. Ashley Huston, a spokeswoman for News Corp.’s Dow Jones & Co., publisher of the Wall Street Journal, declined to comment.
The case is U.S. v. Newman, 12-00124, U.S. District Court, Southern District of New York (Manhattan).