Fund Managers Used Corrupt Chain to Make Money, Jury Told

Level Global co-founder Anthony Chiasson and Todd Newman, a former fund manager for Diamondback Capital Management LLC, used a “corrupt chain” of insiders at public companies to make more than $70 million for their funds, a prosecutor told a jury at the start of the men’s trial.

Assistant U.S. Attorney Richard Tarlowe said today in opening statements in federal court in Manhattan that Chiasson and Newman were part of a group of portfolio managers, analysts and technology company employees who were friends and reaped millions of dollars by trading on illegal stock tips in Dell Inc. and Nvidia Corp.

Four members of the group agreed to plead guilty and will testify for the government, Tarlowe said.

Chiasson made more than $57 million trading on Dell and about $10 million on Nvidia, the prosecutor said. Newman made about $3.8 million from Dell trades and earned about $48,000 on Nvidia, he said.

“They used a corrupt chain of people to get the information into the hands of the defendants,” Tarlowe said. “The defendants chose to break the law. Why? Because they wanted to make big money for themselves and for their hedge funds.”

Chiasson and Newman are charged with conspiracy to commit securities fraud and five counts of securities fraud. The latter crime is punishable by as long as 20 years in prison. Both men pleaded not guilty.

Guilty Pleas

Of the eight people charged in the case, six pleaded guilty to insider trading, including Jesse Tortora, a former Diamondback analyst; Spyridon “Sam” Adondakis, an analyst at New York-based Level Global; and Danny Kuo, a former analyst at Whittier Trust Co., a South Pasadena, California-based wealth-management company.

Jurors will hear from conspirators including Tortora, who will testify he passed illicit tips to Newman and Adondakis, the prosecutor said. Tortora passed illegal tips to Newman, and Adondakis passed illicit information to Chiasson, he said.

“These witnesses will paint a compelling picture of a corrupt network of professionals who chose to break the rules and trade on inside information to make a quick buck,” Tarlowe said.

Stephen Fishbein, a lawyer for Newman, said his client didn’t know the information provided to him by Tortora, the Diamondback stock analyst, was obtained illegally.

“Todd Newman worked hard for his hedge fund,” Fishbein said. “He did not cheat. He did not steal. He did not try to get inside information.”

Mixed Data

Newman didn’t know confidential information was mixed with legitimate research data provided by Tortora -- “information that Mr. Tortora now says he obtained illegally,” Fishbein told the jury.

“Mr. Newman did not know anything, because he was far removed from the sources of inside information, and Tortora made it look like he was conducting legitimate, honest research,” the defense attorney said.

In 2008, when the alleged illegal Dell trades occurred, Newman traded on more than 100 stocks a day and relied upon analysts to prepare research for him, Fishbein said. After Newman fired Tortora, the analyst held a grudge against his former boss and the hedge fund, the lawyer said.

Chiasson’s lawyer, Reid Weingarten, told jurors that his client had no idea that Adondakis was passing illicit nonpublic information to his client.

‘Fight Club’

Adondakis, Tortora and company insiders were members of a clique of friends who called themselves “the Fight Club” after a Brad Pitt film, which passed on nonpublic information that was unrelated to his client, the lawyer said.

“You will learn Adondakis was a criminal,” Weingarten told jurors. “He is an easy, practiced liar, and when it is in Sam Adondakis’s interest, he will lie,” Weingarten said. After the FBI approached him, Adondakis decided to implicate his friends as well as Chiasson, the lawyer said.

The case is the latest in a series of insider-trading cases that last month yielded a two-year prison sentence for the government’s highest-profile target, former Goldman Sachs Group Inc. Director Rajat Gupta. Gupta was convicted of insider trading for conspiring with Galleon Group LLC co-founder Raj Rajaratnam. The fund manager is serving a term of 11 years in prison.

Of 72 people charged with insider trading by U.S. Attorney Preet Bharara’s Manhattan office since August 2009, 69 have pleaded guilty or were convicted at one of six trials. One man remains a fugitive.

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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