Former Diamondback Capital Management LLC fund manager Todd Newman, facing sentencing May 2 for his role in a $72 million insider-trading scheme, asked for a lesser sentence than the 78-month maximum prison term sought by U.S. court officials.
Newman was convicted by a federal jury in Manhattan in December of one count of conspiracy to commit securities fraud and four counts of securities fraud for a scheme to trade on Dell Inc. and Nvidia Corp. using illicit tips provided by their analysts.
U.S. probation officials recommend that Newman be sentenced to a prison term of 63 months to 78 months. Newman, in a sentencing memo filed yesterday, asked U.S. District Judge Richard Sullivan to impose an unspecified lesser term. He also argued that he was responsible for less than the $4 million in profits from Diamondback’s trading in the stocks.
Newman was convicted with Level Global Investors LP co-founder Anthony Chiasson, who left SAC Capital Advisors LP to start his hedge fund. Chiasson is scheduled to be sentenced May 13.
Testimony at trial showed that the two men were part of a group of eight fund managers and analysts who were friends who swapped nonpublic information about technology companies which they passed on to the portfolio managers who they worked for.
Six members of the group have pleading guilty and agreed to cooperate with the U.S. and four men testified at Newman and Chiasson’s trial, including former Diamondback analyst Jesse Tortora, who worked for Newman, and Spyridon “Sam” Adondakis, a former Level Global analyst who worked for Chiasson.
Both analysts told jurors they swapped inside information on technology companies which they passed to their fund managers who they said traded on it. Tortora testified he passed the information to Newman while Adondakis told jurors he gave tips to Chiasson.
The Dell information Adondakis and Tortora funneled was also passed to Jon Horvath, a former analyst at SAC’s Sigma Capital Management unit. Horvath was charged with Chiasson and Newman and pleaded guilty to insider trading charges in September, weeks before the trial was to start. He also agreed to cooperate with the U.S.
On March 29 Michael Steinberg, the portfolio manager whom Horvath reported to, was arrested and charged with insider trading. He has pleaded not guilty to the charges.
Diamondback, which was raided by the FBI in Nov. 2010 as part of the U.S. investigation of insider trading on Wall Street, announced it would close in December after clients pulled money.
The Stamford, Connecticut-based fund received requests from investors to withdraw about $520 million, or 26 percent of its assets, co-founders Richard Schimel and Lawrence Sapanski said in December. They said they plan to return the majority of the money in January.
Newman’s lawyers, Stephen Fishbein and Jonathan Nathanson, dispute the nearly $39 million Diamondback seeks as a victim of the insider-trading scheme. Diamondback said it spent about $10.2 million in legal fees related to the government’s criminal investigation and more than $2 million in compensation.
“Although Diamondback has undoubtedly incurred expenses over the course of these ongoing proceedings, it is not a ‘victim’ under the Mandatory Victims Restitution Act, and therefore cannot claim entitlement to restitution,” Fishbein and Nathanson said in a memorandum filed yesterday.
“Diamondback was a beneficiary of the scheme,” the lawyers said. “It was only after the scheme had ended, and after a public search of its premises by the FBI, that Diamondback suffered any of its claimed losses.”
Newman was born in Minneapolis and moved to Wilton, Connecticut, where he grew up “in an average, middle-class, intact and loving household,” according to the memorandum. Before beginning a career in finance, Newman majored in accounting at Skidmore College, in Saratoga Springs, New York, and later earned a master’s in business administration from Babson College, in Wellesley, Massachusetts, according to the filing.
Diamondback recruited Newman in 2006, offering him his “first opportunity to manage a portfolio on his own” when he was 41 and had spent many years as an analyst, according to the filing.
“Mr. Newman was not handed a lucrative hedge fund position at a young age; rather he worked tirelessly to rise in his profession to become a respected and successful portfolio manager,” Newman’s lawyers said in the memorandum.
Newman has an “amicable” relationship with his ex-wife, with whom he continues to live while they raise their 12-year-old daughter, according to the filing. In a letter excerpted in the memorandum, Newman’s former wife described him as having “always led a simple, quiet life.”
“Todd does not drink, smoke, abuse prescription drugs, take illegal drugs, or gamble. Todd rarely, if ever, swears,” she said. “Todd is respectful of people and does not speak ill of others.”
Steve Bruce, a spokesman for Diamondback at ASC Advisors LLC, declined to comment on Newman’s filing.
The case is U.S. v. Newman, 1:12-cr-00121, U.S. District Court, Southern District of New York (Manhattan).