Level Global Investors LP co-founder Anthony Chiasson, who faces trial Oct. 29 for insider trading of two technology companies, asked to present jurors with an analysis he said shows the hedge fund’s other co-founder, David Ganek, made trades in the same stocks at the same time.
While Ganek hasn’t been accused of wrongdoing, Chiasson’s lawyers told a judge in an Oct. 3 letter that they want to introduce evidence showing the fund manager’s trading in Dell Inc. and Nvidia Corp. occurred in the same period their client was accused of insider trading. The two men were co-heads of Level Global’s largest fund before the firm closed.
The government, opposing the request, said such testimony wasn’t relevant to the case. Prosecutors, however, acknowledged in a court filing that Chiasson had two uncharged co-conspirators at Level Global, though their names were blacked out. If the defense can show others may have been responsible for the Dell and Nvidia trades, it could create reasonable doubt for the jury.
“Chiasson shared discretion over the (only) two funds at Level Global with two other individuals, who have been named as co-conspirators by the government,” Assistant U.S. Attorneys Antonia Apps, Richard Tarlowe and John Zach wrote. Chiasson faces as long as 20 years in prison if convicted.
Manhattan U.S. Attorney Preet Bharara, whose office has pursued a wide-ranging probe of hedge funds that has yielded 70 convictions, alleged Chiasson and former Diamondback Capital Management LLC portfolio manager Todd Newman were part of a tight-knit group of fund managers and analysts who engaged in insider trading of 13 stocks. Chiasson and Newman earned more than $67 million in illicit profits, the U.S. said. Both men, who were first charged in January, have pleaded not guilty.
Ganek and Chiasson were running Level Global when it closed in February 2011 due to the federal investigation. Chiasson and Newman were charged along with five other fund managers, analysts and technology company employees who allegedly swapped illegal tips about Nvidia and Dell.
Greg Morvillo and Reid Weingarten, Chiasson’s defense lawyers, wrote U.S. District Judge Richard Sullivan in Manhattan federal court seeking to have expert testimony by a finance professor presented at trial. They contend that much of the trading at the hedge fund in Nvidia and Dell stock was directed “not by Mr. Chiasson but by others at Level Global.”
Professor Mukesh Bajaj, of the University of California at Berkeley, “may identify which of the trades at issue with regard to Dell Inc. and Nvdia Corp. were directed by Mr. Ganek,” they told Sullivan, who presides over the case.
Bajaj’s testimony “may identify which of the trades at issue with regard to Dell Inc. And Nvidia Corp. (together, the ‘charged stocks’) were directed by Mr. Ganek,” the defense lawyers wrote in their letter. “Bajaj may identify instances where the government has alleged that Mr. Chiasson received material non-public information and yet Level Global’s records reflect no trading by either Messers. Chiasson or Ganek.”
Prosecutors said Bajaj should be barred from testifying because the defense hasn’t revealed what trades were reviewed in his analysis. He would have to determine which trades were executed by Chiasson in order for his testimony to provide “any meaningful comparisons in trading analysis of trades executed,” the government said in its Oct. 12 filing, which included the defense letter to the judge. Morvillo declined to comment.
Ganek’s lawyer, John Carroll, said if prosecutors don’t specify at trial the trades Chiasson made that are the subject of his prosecution, the defense must make clear to jurors “what trades he made and what trades were done by others.”
“What Chiasson is doing is identifying people who may have traded in this stock,” Carroll said in an interview. “He’s not pointing the finger at anybody else, including my client. “If the government accuses us of that, then we’ll defend it.”
In a revised indictment filed Aug. 28, prosecutors claimed Chiasson helped illegally boost Level Global’s profits by $67 million, including $53 million from alleged insider trading in Dell stock during trades in August 2008.
“The government’s alleged illegal profit amounts are profoundly inflated,” Morvillo and Weingarten said in court papers. “Much of Level Global’s trading in these stocks was directed not by Mr. Chiasson but by others at Level Global.”
The defense lawyers, arguing prosecutors are trying to hold their client responsible for trading he didn’t do, pointed to the unidentified Level Global employees noted in the government’s court filings.
“Although the government contends those individuals are unindicted co-conspirators, for whose conduct Mr. Chiasson may be held liable,” Morvillo and Weingarten wrote, “it would be misleading and unfair for the government to suggest inaccurately to the jury without explication, that all of Level Global’s profits in Dell and Nvidia are ill-gotten and attributable solely to Mr. Chiasson’s actions.”
Carroll said the government hasn’t told him the identities of the unindicted co-conspirators.
“There were other people at the fund who were authorized and could trade at Level Global,” Carroll said. “There were absolutely more than two people.”
The government also argued that Bajaj shouldn’t be permitted to testify about parallel trading by others at Level Global, or about who at the fund directed particular trades, because he has no first-hand knowledge of who directed the trades in both stocks and options.
The defense “also states that Dr. Bajaj may compare options trading by David,” the government wrote of one man, with the last name blacked out, “and Chiasson to show the lack of correlation between their use of options.”
“This is irrelevant to the question of whether Chiasson committed insider trading,” the prosecutors said.
Carroll said that, while others at Level Global may have traded in the technology stocks during the relevant period, “the government has investigated this case for two years and put all sorts of manpower to this insider-trading probe, including wiretaps and a search, and my client hasn’t been contacted by the government and hasn’t been charged.”
Carroll, previously the chief of the securities and commodities fraud unit at the Manhattan U.S. Attorney’s office, is a partner at Skadden Arps Slate Meagher & Flom LLP who specializes in white-collar crime and regulatory enforcement.
He previously defended John Milne, United Rentals Inc.’s former chief financial officer, on federal fraud charges, and Gary Crittenden, Citigroup Inc.’s ex-CFO, in a Securities & Exchange Commission-related matter.
Carroll also recently advised Adam Galeon, a former Credit Suisse analyst who settled claims by the New York Stock Exchange that he told clients about a company’s earnings forecast a day before the information was made public.
Ganek has never received material nonpublic information, Carroll said. Buying or selling stock based on such information may constitute insider trading.
The lawyer added that he hasn’t spoken with prosecutors during the two years of the investigation.
“I think that says quite a lot,” Carroll said.
Ganek, 49, and Chiasson, 39, founded Level Global in 2003, after meeting at SAC Capital Advisors LP, Steven A. Cohen’s hedge fund in Stamford, Connecticut. A New York native, Ganek’s father, Howard Ganek, was a partner at money management firm Neuberger Berman and a well-known philanthropist.
The younger Ganek, and his wife, Danielle, an author of two comic novels that feature New York’s upper class, own multimillion-dollar homes. These include a beachfront property in Southampton on New York’s Long Island they bought for $12.7 million, and a $19.1 million Park Avenue duplex in Manhattan.
Ganek sits on the board of the Guggenheim Museum and has a large modern art collection that includes works by Diane Arbus, Richard Prince and Ed Ruscha.
The hedge fund manager graduated from Franklin & Marshall College in Lancaster, Pennsylvania in 1985, where he received a bachelor’s degree in government and was captain of the squash team.
Ganek later joined New York investment bank Donaldson, Lufkin & Jenrette, where he worked on the risk-arbitrage desk. After an eight-month stint at NatWest Bank USA in New York, he started hedge fund G&O Partners LP with Paul Orwicz, which they closed after only a few years.
SAC Capital founder Cohen offered Ganek a job in 1997, asking him to trade technology stocks. Two years later, Chiasson joined SAC as a technology analyst, working with Ganek.
Ganek produced strong returns in 2000 in his $300 million portfolio, even as the technology bubble burst, and the two men used that track record to help raise about $500 million and open Level Global, according to a person familiar with the matter who asked not to be named because the information was private.
In February 2011, the two men closed the $4 billion Level Global hedge fund, citing the U.S. insider trading probe.
Level Global was among four firms that were raided by the FBI in November 2010.
Chiasson and Diamondback’s Newman are charged with conspiracy and securities fraud, which carries a term of as long as 20 years in prison. John Nathanson, a lawyer for Newman, didn’t return a call seeking comment.
Jon Horvath, a former analyst at SAC’s Sigma unit, pleaded guilty Sept. 28 to conspiracy to commit securities fraud and two counts of securities fraud.
Horvath, who was scheduled for trial with Chiasson and Newman admitted passing inside information to his portfolio manager at Sigma about Round Rock, Texas-based Dell in August 2008 and Santa Clara, California-based Nvidia in May 2009.
To date, six of the eight people charged in Chiasson’s case pleaded guilty and are cooperating with the government. Only Newman and Chiasson remain, having denied any wrongdoing.
Carroll, Ganek’s lawyer, said Chiasson’s request to present evidence at trial about others at Level Global is an effort to “point out trading” that the government doesn’t make clear, rather than sullying Ganek.
“The government knows how to charge people and they haven’t shown any shyness at all about bringing cases,” Carroll said. “My client hasn’t been charged in two years.”
The case is U.S. v. Newman, 12-00124, U.S. District Court, Southern District of New York (Manhattan).