Four men arrested last month and charged with participating in a “criminal club” that made almost $62 million using illegal tips to trade in Dell Inc. stock pleaded not guilty.
Level Global Investors LP co-founder Anthony Chiasson; Todd Newman, a portfolio manager formerly at Diamondback Capital Management LLC; Jon Horvath, an analyst at hedge fund Sigma Capital Management LLC; and Danny Kuo, a fund manager for Whittier Trust Co., entered not guilty pleas to conspiracy and securities fraud charges today in Manhattan federal court.
Prosecutors from the office of Manhattan U.S. Attorney Preet Bharara said the ring, which allegedly involved five hedge funds and investment firms, is the largest identified by the U.S. to date tied to a single stock. One trade earned a $53 million illegal windfall for Chiasson and Level Global, prosecutors allege.
Bharara has called the group “a criminal club, whose purpose was profit and whose members regularly bartered lucrative inside information.”
All four men are charged with one count of conspiracy to commit securities fraud. Newman is charged with three counts of securities fraud and Chiasson with four counts of securities fraud. Horvath and Kuo are additionally charged with one count of securities fraud. All four were arrested Jan. 18. They entered their pleas at a hearing before U.S. District Judge Richard Sullivan.
Prosecutors have recordings of conversations between Chiasson and John Kinnucan, founder of an expert-networking firm whose mobile phone was wiretapped by federal investigators, Assistant U.S. Attorney Antonia Apps told the judge. Kinnucan hasn’t been accused of wrongdoing.
“Mr. Chiasson fired me after only three months, much to my surprise at the time, but after seeing the kind of information he was evidently getting elsewhere, now I understand why he didn’t have any need for the types of channel checks I could provide,” Kinnucan said in an e-mail today.
Kinnucan said he’s “highly confident Mr. Chiasson will not be convicted of any insider trading charges based on any of our conversations, since everything we talked about was industry-standard research, as practiced by all the investment banks, large and small, and which practices have been blessed by the SEC for many years now,” a reference to the U.S. Securities and Exchange Commission.
Prosecutors also have recordings of Newman, Horvath and Kuo speaking with cooperating witnesses, Apps said. She didn’t name the witnesses.
Three other men charged in the scheme pleaded guilty and are cooperating with the U.S. -- Jesse Tortora, formerly of Diamondback; Spyridon “Sam” Adondakis, a Level Global analyst; and Sandeep Goyal, a former employee at Round Rock, Texas-based Dell, the third-largest maker of personal computers.
Apps told Sullivan the government will give the defendants “a huge volume” of evidence, including millions of e-mails and documents produced by the companies where the accused worked and copies of the data from their former work computers.
Sullivan scheduled a conference in the case for April 13. He didn’t set a trial date.
A five-year insider-trading probe by Bharara’s office and the Federal Bureau of Investigation in New York called “Perfect Hedge” has resulted in charges against at least 64 people, according to the FBI.
More than 50 have pleaded guilty or been convicted after trial since 2009, including Galleon Group LLC co-founder Raj Rajaratnam, who is serving an 11-year prison sentence.
The case is U.S. v. Newman, 12-cr-121, U.S. District Court, Southern District of New York (Manhattan).