Level Global Investors LP co-founder David Ganek was described by a prosecutor as a co-conspirator in an insider-trading scheme that allegedly involved his fellow hedge-fund co-founder Anthony Chiasson.
The government made its claim yesterday in Manhattan federal court during a hearing outside the jury’s presence in Chiasson’s trial. At issue was whether jurors should be shown e-mails that involve Ganek, who started Level Global with Chiasson in 2003 after they worked at Steven A. Cohen’s SAC Capital Advisors LP. The judge in the case said he will decide later if he will allow the U.S. to show the jury the evidence.
“There are a number of facts in the record already showing that Ganek is a co-conspirator,” Assistant U.S. Attorney Antonia Apps told U.S. District Judge Richard Sullivan during the hearing. “I will point out in e-mails and IMs, they are objecting to, that Ganek is in that evidence.”
Chiasson, 39, and Todd Newman, a former portfolio manager at Stamford, Connecticut-based Diamondback Capital Management LLC, are on trial for allegedly trading on inside information in Dell Inc. and Nvidia Corp., based on illegal tips provided by analysts who worked for them. Both men have pleaded not guilty. Six former or current employees of Stamford-based SAC have been tied to insider trading while working at that firm, including three who have pleaded guilty, as part of the biggest investigation of illegal tipping at hedge funds in U.S. history.
Ganek, 49, hasn’t been charged with a crime and the judge didn’t rule on the U.S. contention that he is a co-conspirator.
Ganek’s lawyer rejected the prosecution claim and Greg Morvillo, a lawyer for Chiasson, objected to the government’s showing jurors the e-mails involving Ganek as part of their questioning of Spyridon “Sam” Adondakis.
Adondakis, 41, who worked as a technology analyst for Chiasson at the New York-based hedge fund, has pleaded guilty and is cooperating with the U.S. He completed his testimony yesterday at the trial.
Adondakis testified that on Aug. 11, 2008, he informed Chiasson and Greg Brenner, a Level Global supervisor, that he had obtained nonpublic information from one of his sources about Round Rock, Texas-based Dell, which he said was also passed on to Ganek that day, Apps said.
Prosecutors alleged that, as a result of the tip, the hedge fund executed trades in Dell stock, earning an illicit profit of $53 million.
Apps also said Adondakis testified that he had spoken to Chiasson and Brenner during an Aug. 27, 2008, conference call, in which Adondakis, who was on vacation, passed on final Dell earnings information a day before the company issued its quarterly earnings announcement. Adondakis testified Ganek was on a telephone call during which the information was relayed.
“Those are a lot of circumstantial facts showing Mr. Ganek was provided with the actual numbers and had sufficient circumstantial evidence to show that he knew those numbers, that you can’t ordinarily get, that the numbers would have had to come from an inside source,” Apps said in court.
John Carroll, a lawyer for Ganek, said in an e-mailed statement that “more relevant is the testimony from the government’s star witness that David Ganek was not told about inside information, and the fact that after a two-year investigation my client has not been charged by anyone with doing anything wrong.”
During the hearing outside the jury’s presence, Morvillo argued that Adondakis hasn’t implicated Ganek or indicated the fund’s co-founder was aware the information he’d received wasn’t public.
Morvillo noted that Reid Weingarten, another lawyer for Chiasson, closely questioned Adondakis yesterday about whether Ganek was aware the information provided for the fund’s August 2008 Dell trade was based on inside information.
Weingarten asked Adondakis if, during the August 2008 telephone call he had with Chiasson, Ganek and Brenner, he had revealed that his source was a Dell insider.
“What if anything did you tell Mr. Ganek? Did you discuss your source?” Weingarten asked Adondakis.
“No, I didn’t discuss it with Mr. Ganek, but I did disclose it prior, to Mr. Chiasson,” Adondakis said.
“Did you disclose your source on that phone call?” Weingarten asked.
“No, I did not disclose the source,” he testified.
David Pitofsky, a lawyer for Brenner, didn’t immediately return a call seeking comment about the case.
At another point, Weingarten yesterday asked Adondakis if he knew that Ganek wasn’t even in the office on Aug. 11, 2008, the day that the witness said he watched Chiasson and Brenner walk his data sheet on Dell trades into Ganek’s office.
“Isn’t it true that you now know on Aug. 11 that David Ganek was not in his office receiving the documents that you talked about on direct and cross but rather was up in the Hamptons?” Weingarten asked.
“I don’t know where he was on that day and I’m recanting the details that I remember, and I don’t know--,” Adondakis said.
The judge interrupted Adondakis, “You are recanting them? Are you recounting or recanting?”
“I’m sorry,” Adondakis replied, “I’m recounting, I’m just trying to tell you what I remember.”
Adondakis told jurors he obtained and shared nonpublic information about Dell from his friend, Jesse Tortora, who worked as a Diamondback Capital Management analyst. Adondakis and Tortora, who has also pleaded guilty and testified at the trial, told jurors the Dell tips were provided by a mutual acquaintance, Sandeep ‘Sandy’ Goyal. Goyal has also pleaded guilty and testified at the trial.
Morvillo argued at the hearing outside the jury’s presence that the e-mails and evidence sought by prosecutors shouldn’t be allowed into the case.
“There is a question of whether or not Mr. Ganek is actually a conspirator in this situation, after Mr. Adondakis said he didn’t know the source on Dell,” Morvillo said. “I don’t see how he is a co-conspirator. There has been no evidence,” Morvillo said, adding later, “You can’t have insider trading without knowing the sources.”
Last week, Weingarten, who once represented WorldCom Inc. Chairman Bernard Ebbers, convicted of masterminding one of the biggest frauds in U.S. history, asked Adondakis what he told Ganek about the tips he’d obtained from Tortora and Goyal about Dell revenue and gross margin figures ahead of the company’s public announcement.
“What if anything did you tell Mr. Ganek about Sandy Goyal’s source within Dell?” Weingarten asked.
“I never told him about it,” Adondakis said.
Weingarten showed Adondakis more of the memos, saying “Well, you made assertions to the FBI that ‘the Level Global fund and Radar fund were performing low, Chiasson and Ganek decided to make trades based on the information obtained from Goyal’ didn’t you say that?”
“I’m not sure what you’re reading off of and I don’t remember saying that,” Adondakis said.
“Did you implicate Mr. Chiasson in insider trading?” Weingarten asked.
“Yes,” Adondakis said.
“And what about Mr. Ganek?” Weingarten asked.
“I don’t know about Mr. Ganek,” Adondakis said.
Sullivan didn’t rule yesterday on whether he would find Ganek a co-conspirator, and instead asked both prosecutors and defense lawyers to submit court papers to him on the issue last night after court concluded.
“This is a pretty important threshold to cross, which is whether or not Mr. Ganek is in fact a member of the conspiracy,” Sullivan said. “So I have to make that finding before I’m going to let those statements in.”
Adondakis is the third cooperating witness to testify at the trial in a group of six men, including analysts for hedge funds, who have pleaded guilty to swapping illegal tips from insiders at technology firms as part of the insider-trading scheme.
“There are literally hundreds and hundreds of exhibits in this case,” the judge told prosecutors.
“Marshal them. Let me know which are the ones that support an inference of Ganek being a co-conspirator and I will look at them,” Sullivan said, adding he will let Morvillo file a response on behalf of Chiasson.
The case is U.S. v. Newman, 12-cr-00124, U.S. District Court, Southern District of New York (Manhattan).