Level Global Investors LP co-founder Anthony Chiasson was sentenced to 6 1/2 years in prison for using illegal tips funneled to him from analysts and company insiders to make more than $68 million for his hedge fund.
U.S. District Judge Richard Sullivan in Manhattan handed down the sentence today, setting aside the recommendation from advisory guidelines for a term of 10 to 13 years. Sullivan presided over the jury trial last year that ended in Chiasson’s conviction on conspiracy and securities fraud charges for trading on illegal tips on Dell Inc. and Nvidia Corp.
Chiasson, 39, of New York, began his career on Wall Street at Salomon Brothers and later left Steven A. Cohen’s SAC Capital Advisors LP to start his own hedge fund.
Sullivan said that while the eight to 10 years in prison sought by prosecutors would have been appropriate, Chiasson’s crimes didn’t rise to the level of other insider traders the judge has sentenced, such as former Galleon Group LLC trader Zvi Goffer, who Sullivan ordered to 10 years in prison.
While Sullivan today acknowledged that Goffer was a “leader and corrupter” who recruited insiders to give him illegal tips, he said Chiasson’s insider trading must be punished with a period of incarceration.
“It is not embezzling, but it was cheating to realize tremendous profits of tens of millions of dollars,” Sullivan said.
Six others charged with taking part in the insider-trading ring that provided illegal tips to Chiasson have pleaded guilty and are cooperating with a U.S. probe that has increasingly focused on Stamford, Connecticut-based SAC Capital and Cohen, its founder.
Chiasson’s sentence was the third-longest prison term imposed by a federal judge in Manhattan upon an insider-trading defendant since the Manhattan U.S. Attorney’s office and Federal Bureau of Investigation in New York began a crackdown against illegal tipping by fund managers, analysts and insiders at technology companies.
Of the 81 people charged by federal prosecutors in Manhattan with insider trading, 49 people have been convicted and sentenced. Only two others received longer terms than Chiasson -- Goffer and Galleon Group LLC co-founder Raj Rajaratnam, who was sentenced to 11 years in prison.
The judge acknowledged today that Chiasson has done good works, including helping save his Catholic high school in Portland, Maine, from closure and creating a scholarship program for his alma mater, Babson College. Sullivan also suggested that Chiasson was wealthy enough to give generously.
“I have to come back to this crime, these crimes, which were committed over a period of time when you were already fabulously wealthy,” Sullivan said. Chiasson’s tax returns show that during the time the insider trading occurred, the portfolio manager was earning $16 million, $10 million and $23 million a year, Sullivan said.
“That’s just staggering,” the judge said. “It’s hard to imagine why someone would risk all that to engage in a crime such as this. I can understand the need to beat the street and pick the winners, but the risks put in jeopardy everything you ever worked for.”
Greg Morvillo, Chiasson’s lawyer, sought leniency, saying the conduct alleged by prosecutors was “aberrant” and that his client has led an “extraordinary” life filled with good works, starting when he was an altar boy at age 8. Morvillo argued that the amount of money allegedly earned on illicit tips artificially pushed Chiasson’s potential prison term into the 10-year range.
“I’m asking you to judge this man not based on how much money he made but on the man and his life,” Morvillo said.
The judge said he felt sympathy for Chiasson’s wife, who was in the courtroom, and the couple’s two young children, including a 1-year-old daughter.
“I’m so sorry for your family, I’m so sorry for your wife,” Sullivan said.
The judge said he disagreed with Morvillo that the sentencing guidelines are unfair in how they accounted for the amount of money reaped in the scheme. He said anyone who pursued such hefty profits from illegal activities should expect more severe punishment.
“I do think that anyone who engages in this kind of conduct for this a kind of money has to be on notice that the guidelines are a pretty good warning call on what to expect if you get caught,” Sullivan said.
Sullivan today rejected Chiasson’s request to remain free while he challenges his conviction and ordered him to surrender in 90 days. He said he would recommend that Chiasson serve his time at a federal prison camp in Otisville, New York, or a facility in the New York area to remain near his wife and children. Sullivan also ordered Chiasson pay a $5 million fine and said a forfeiture amount will be determined at a later date.
Mark Pomerantz, another lawyer for Chiasson, told Sullivan today that the defendant will ask the U.S. Court of Appeals in New York to allow him to remain free pending his appeal.
Chiasson, who didn’t address Sullivan in court, declined to comment as he left court.
Morvillo said in a phone interview that his client was “disappointed” with the term imposed and would challenge a ruling by Sullivan that Morvillo said made it easier for prosecutors to prove culpability for insider trading.
For more than 30 years, other federal judges in Manhattan have ruled that the recipient of a tip isn’t liable for insider trading unless he knows the tipper did so for a personal benefit, Morvillo said. Sullivan alone has issued a ruling that makes it easier for the government to prove culpability for insider trading, Morvillo said.
“This is just round one,” he said. “Mr. Chiasson maintains his innocence and is still very proud of all he accomplished at Level Global.”
Chiasson was convicted of one count of conspiracy and five counts of securities fraud in December. Level Global, based in Greenwich, Connecticut, agreed in April to pay more than $21 million to settle regulatory claims filed by the U.S. Securities and Exchange Commission.
Chiasson’s co-defendant at trial, former Diamondback Capital Management LLC portfolio manager Todd Newman, was also found guilty. He was sentenced by Sullivan on May 2 to 4 1/2 years in prison. He is appealing that conviction and has asked that he be allowed to remain free while he appeals his case.
Prosecutors said the two portfolio managers were part of a group of portfolio managers, fund analysts and technology company insiders who shared material nonpublic information about the firms and then traded on them.
Defendants who pleaded in guilty in the probe and are cooperating include Jon Horvath, a former analyst at SAC’s Sigma unit. Michael Steinberg, an SAC portfolio manager to whom Horvath reported, was indicted in March on one count of conspiracy and four counts of securities fraud for trading in Dell and Nvidia based on tips from Horvath. Steinberg has pleaded not guilty.
Also indicted was Mathew Martoma, a former fund manager for SAC’s CR Intrinsic Investors. In what prosecutors at the office of Manhattan U.S. Attorney Preet Bharara called the biggest insider-trading scheme in history, Martoma was accused of helping SAC make $276 million on illegal tips about an Alzheimer’s drug by trading in shares of Elan Corp. and Wyeth LLC.
SAC agreed to pay $600 million to settle an SEC lawsuit tied to Martoma’s alleged insider-trading. Martoma has pleaded not guilty and is awaiting trial.
Cohen, 56, hasn’t been charged with a crime and has denied any wrongdoing.
While at SAC, Chiasson worked as David Ganek’ analyst and the two founded Level Global in January 2003. By 2010, the fund had grown to $4.2 billion in assets under management. After the FBI raided Level Global in November 2010, Ganek announced the fund would close in January 2011.
Sullivan today said he would decide later on how much money Chiasson would be ordered to forfeit as proceeds of trading from illegal tips. He also concluded today that Level Global had earned more than $20 million from insider trading on illegal tips.
Morvillo said today that he calculated that Level Global earned only $3.7 million as a result of trading in the stocks of Round Rock, Texas-based Dell and Santa Clara, California-based Nvidia.
Assistant U.S. Attorney Antonia Apps said based on a 24-hour calculation of trading set by Sullivan during Newman’s sentencing, Chiasson was liable to forfeit more than $40.3 million earned by Level Global as a result of trading in the two technology company stocks.
Morvillo said today that Chiasson “should not be required to forfeit gains of any co-conspirators.” Morvillo previously said in court papers that the fund earned more than $21.6 million on trades by Ganek.
During the trial, Sullivan made a legal finding that Ganek was an uncharged co-conspirator in Chiasson’s insider-trading scheme. Ganek hasn’t been charged with a crime and has denied any wrongdoing.
“Should Mr. Chiasson be on the hook for all the trades at Level Global, including the trades by Ganek?” Sullivan asked lawyers today. “There was a finding that Ganek is an unindicted co-conspirator and if that’s the case, would he be on the hook for all of the Ganek trades?”
“I don’t think so,” Morvillo said. “There’s no evidence that Anthony Chiasson and David Ganek were doing this together.”
Apps said today the government believes that Chiasson should be held liable for any of Ganek’s trading in the stocks, saying the trading position Level Global took in Dell in 2008 “was based on inside information; It’s clearly one trade and one reason behind the trade.”
Sullivan said he will issue a ruling on how much Chiasson will be ordered to forfeit after receiving submissions from both sides.
Spyridon “Sam” Adondakis, who worked for Chiasson as an analyst, pleaded guilty and testified at the trial. He described obtaining constant updated nonpublic information about technology companies that he passed to Chiasson. Adondakis said he didn’t tell Ganek about the source of his tips.
“Anthony Chiasson’s case is over and we remain confident that our client did nothing wrong,” John Carroll, Ganek’s lawyer, said today in a statement. “The government’s recognition that no charges should be brought confirms our confidence in David.”
The case is U.S. v. Newman, 1:12-cr-00121, U.S. District Court, Southern District of New York (Manhattan).