Fund Managers Were Links in ‘Corrupt Chain,’ U.S. Says

Hedge Fund Managers Were Links in ‘Corrupt Chain,’ U.S. Says
The government said that in 2008, Anthony Chiasson and Level Global Investors LP earned $57 million on illegal tips on Dell Inc. Photographer: Jin Lee/Bloomberg

A U.S. prosecutor told a jury that Level Global Investors LP co-founder Anthony Chiasson and former Diamondback Capital Management LLC portfolio manager Todd Newman made more than $70 million on trades based on illicit tips from analysts who worked for them.

Assistant U.S. Attorney Antonia Apps began making the prosecution’s closing arguments yesterday in Manhattan, where Newman and Chiasson have been on trial since Nov. 7, accused of exploiting inside information about technology companies such as Dell Inc. and Nvidia Corp. They have pleaded not guilty.

The two were part of what the government calls a “corrupt chain” or a tight-knit group of friends who swapped and traded on illicit tips.

Six others charged by the office of Manhattan U.S. Attorney Preet Bharara with being part of the ring, including Jon Horvath, a former analyst at SAC Capital Advisors LP’s Sigma unit, have pleaded guilty and are cooperating with authorities.

“Todd Newman and Anthony Chiasson got secret confidential information from people who were insiders at public companies and used it to make millions of dollars in the stock market,” Apps said. “They were part of a corrupt chain of people who got secret information.”

Conspiracy, Fraud

Chiasson and Newman are charged with conspiracy and securities fraud for their roles during the alleged period that inside tips were swapped from 2007 to 2009. Both face a maximum of 25 years in prison if convicted. Summations will continue today., U.S. District Judge Richard Sullivan said.

During the trial, former Diamondback analyst Jesse Tortora testified that he passed inside tips to Newman. A former Level Global analyst, Spyridon “Sam” Adondakis, told the jury that he shared nonpublic information with Chiasson. The information was obtained by their friend Sandeep “Sandy” Goyal, a Neuberger Berman analyst who once worked at Dell.

After the prosecutor concluded yesterday, John Nathanson, a lawyer for Newman, told jurors that Tortora was the only witness to testify at the trial that he had passed nonpublic information to Newman. Nathanson argued that Tortora had lied on the stand.

“The government’s case against Todd Newman, my client, rises and falls on the word of one person, Jesse Tortora,” Nathanson said. “Ladies and gentlemen, the evidence in this case shows that Mr. Tortora lied to you and he cannot and should not be trusted to convict my client.”

E-Mails, Instant Messages

During her closing argument, Apps showed jurors dozens of e-mails and instant messages that Tortora and Adondakis exchanged with their fund managers, which she argued was evidence of Newman and Chiasson respectively receiving inside information, including updates on gross margins and revenue on both Dell and Nvidia.

“We’ve shown you proof beyond a reasonable doubt that Todd Newman and Anthony Chiasson knew they were getting secret information,” Apps said. Both fund managers took some of the largest positions they had ever made in the stocks after Tortora and Adondakis testified they had passed illicit tips.

“It’s not a coincidence” she said. “It’s because they had a secret pipeline to insiders at Dell and Nvidia,” she said. “They had confidential information that other investors didn’t have.”

The government said that in 2008, Chiasson and Level Global earned $57 million on illegal tips on Dell, while Newman and Diamondback earned $3.8 million on the alleged secret information about Dell. In 2009, Chiasson and his fund earned $10 million on Nvidia tips while Newman and Diamondback earned $48,000, prosecutors said.

Trading Pattern

Nathanson showed jurors charts depicting trades made by the fund at the same time Tortora testified he had passed inside tips about Dell to Newman. The defense lawyer argued that Newman’s trading pattern was inconsistent with someone who possessed accurate revenue and gross margin numbers from a company insider. The lawyer also argued that his client often lost money by selling off stock at a time the insider tips indicated it would do well.

“The question is what did Todd Newman know?” Nathanson said. “Did he believe he was getting inside information or did he believe he was getting legitimate work from his analyst who he paid to do a legitimate job?”

Chiasson’s lawyer, Reid Weingarten, is scheduled to deliver his closing arguments to the jury after Nathanson finishes. U.S. District Judge Richard Sullivan, who is presiding over the trial, told jurors they could begin their deliberations as early as tomorrow.

FBI Agent

One witness called by a lawyer for Newman Dec. 10 was David Makol, a Federal Bureau of Investigation securities-fraud agent. He told jurors that he has persuaded dozens of people to cooperate with the government.

The defense lawyer, Steve Fishbein, called Makol in an attempt to show what he alleges are inconsistencies between Tortora’s trial testimony and the FBI agent’s notes of interviews with Tortora when he first agreed to cooperate.

Weingarten questioned Makol about notes the agent took of statements Adondakis made to agents and prosecutors about what he told Chiasson.

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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