Diamondback Cooperator Calls Should Be Barred, U.S. Says
Jurors in the insider-trading trial of Level Global Investors LP co-founder Anthony Chiasson shouldn’t hear recorded calls a cooperator made at the behest of the FBI because they contain false information and were used as a ruse to ensnare other suspects, prosecutors said.
The government urged exclusion of the FBI’s recordings because they contain a mixture of “incriminating and (false) exculpatory statements” that could confuse jurors and unfairly turn them against the U.S. case, according to court papers.
Chiasson and former Diamondback Capital Management LLC portfolio manager Todd Newman are seeking to play calls made by former Diamondback analyst Jesse Tortora, the government cooperator, at their trial starting later this month in Manhattan federal court.
The recordings, made at the direction of the Federal Bureau of Investigation, include a Dec. 1, 2010, call Tortora made to Whittier Trust Co. fund manager Danny Kuo after FBI agents raided Diamondback and three other hedge funds a week earlier. The U.S. said the purpose of the call was to elicit incriminating statements from Kuo.
“Members of the jury may object to the notion that the FBI is recording individuals without telling them, or that cooperating witnesses engaged in deceptive behavior at the direction of the FBI, even though these are entirely permissible law enforcement techniques,” the prosecutors said in a filing yesterday.
The calls “were an undercover ruse set up by the FBI,” the government said in yesterday’s filing.
Tortora, who was cooperating with the U.S. when he recorded the call, pleaded guilty in 2011 to passing nonpublic information to Newman and others. Kuo pleaded guilty in April, admitting he used illegal tips to trade in Dell Inc. (DELL) Six of eight people charged in the case have pleaded guilty and are cooperating with prosecutors.
“What’s happening, man?” Tortora asked during the Dec. 1 call, according to a transcript of it prosecutors submitted with their request.
“Dude, is your phone tapped?” Kuo replied.
“Wait, is the phone tapped?” Tortora asked, adding, “Why do you ask that?”
“Uh, because I saw on the news, on Bloomberg,” Kuo said, “that you and Todd are, uh, being investigated.”
Prosecutors say Newman and Chiasson were part of a tight- knit group of fund managers, analysts and technology company employees who traded stock tips. The U.S. said Chiasson and Newman earned more than $63 million in illicit profits trading in Dell and Nvidia Corp. (NVDA)
Newman and Chiasson pleaded not guilty to the charges and are scheduled to go on trial Oct. 29 before U.S. District Judge Richard Sullivan. The judge today denied Newman’s request to try the men separately.
Tortora’s recorded call with Kuo should be heard by the jury during the trial, Stephen Fishbein and John Nathanson, two lawyers for Todd Newman, said in a court filing, adding that Tortora’s credibility “will be at issue.”
The recording should be heard because it “contains statements by Mr. Tortora that he intends to blame Mr. Newman for anything he has done wrong,” the lawyers said.
During the December call, Kuo told Tortora: “The best thing to do, for you, right now is to push every responsibility up to Todd,” according to the transcript.
Greg Morvillo, a lawyer for Chiasson, declined to comment on the government’s request to block the recordings.
In the December 2010 call, Kuo questioned Tortora about his reason for phoning him.
“To be honest with you, I don’t even know why I’m taking your call,” Kuo said, adding, “I have high suspicion that this phone line could be tapped.”
During the call, both men discussed possible defense strategies they could raise, such as their reliance on “channel checks,” or a review of publicly available data on a company, or a “mosaic” of legitimate research they’ve compiled.
Tortora said on the call that he had gone in to speak to the FBI and that they’d questioned him about Newman.
“You might consider hiring yourself a lawyer,” Kuo said, noting news reports that that Diamondback was one of four funds being investigated.
The two also discussed the insider-trading case of former Galleon Group LLC co-founder Raj Rajaratnam and his co- defendants, Danielle Chiesi, a former New Castle Partners LLC portfolio manager and Richard Choo-Beng Lee, a former partner at Spherix Capital LLC.
“Don’t get your name on the same list as you know, Raj, whoever, Danielle Chiesi, and you know, C.B. Lee and all those guys, you know what I’m saying?” Kuo told Tortora.
Kuo warned Tortora during the call about talking to the U.S. and implicating others, including Newman.
“I’m not trying to say you should throw Todd under the bus,” Kuo said. “Before throwing names out there, consider the consequences.”
Kuo concludes the call with a final warning to Tortora about making future calls from his personal telephones.
“I would seriously invest in some quarters, and start calling from 7-Elevens,” Kuo said.
Prosecutors said in court papers that certain calls made at the direction of the FBI shouldn’t be played by Newman and Chiasson during the trial because they are hearsay. The U.S. also said they don’t expect to call Kuo as a witness, so any recordings that include him shouldn’t be heard by the jury.
“Tortora’s statements primarily reflect instructions he received from the FBI for purposes of ultimately eliciting admissions from Kuo,” prosecutors said. “The recordings are unfairly prejudicial and could cause juror confusion.
The case is U.S. v. Newman, 12-00121, U.S. District Court, Southern District of New York (Manhattan).
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