Level Global, SAC Fund Managers Ruled Co-Conspirators
A Level Global Investors LP co- founder and an SAC Capital Advisors LP fund manager were ruled to be co-conspirators in a scheme to swap illegal stock tips, clearing the way for prosecutors to introduce their e-mails at the insider-trading trial of two other men.
U.S. District Judge Richard Sullivan in Manhattan said yesterday that e-mails and instant messages involving David Ganek of Level Global and SAC Capital’s Michael Steinberg sufficiently showed that they may have known information they used for trades came from insiders.
That means the communications can be shown to the jury at the criminal trial of Anthony Chiasson, who co-founded Level Global with Ganek, and Todd Newman, a former portfolio manager at Diamondback Capital Management LLC. Neither Ganek nor Steinberg has been charged with a crime. Lawyers for Chiasson and Newman had asked the judge to exclude the messages.
“It seems to me that the evidence against Mr. Ganek is largely circumstantial,” Sullivan said yesterday. “But I do think the rest of the facts support that Mr. Ganek” may have been aware of the source of his information, the judge said.
He drew a similar conclusion about the Steinberg communications.
“The e-mails that were relayed to Steinberg do indicate to me that he understands the source of the information that he’s getting and he’s trading on it,” the judge said. “All of that indicates this is inside information from the company that’s not available anywhere else, so I’m going to allow it.”
Prosecutors allege that Newman and Chiasson earned more than $67 million by trading on inside information in Dell Inc. (DELL) and Nvidia Corp. (NVDA) that was provided by analysts who worked for them. Both have pleaded not guilty to securities fraud and conspiracy.
Jesse Tortora, a former analyst who worked for Newman, and Spyridon “Sam” Adondakis, who once worked as an analyst for Chiasson, testified they were part of a group of friends who swapped nonpublic information they obtained from insiders at technology companies. They said they then passed on that information to their portfolio managers who traded on the illegal tips.
Tortora and Adondakis have pleaded guilty and are cooperating with the U.S. They are among six people who have pleaded guilty to participating in the scheme.
Prosecutors argued that Tortora, Adondakis and Jon Horvath, a former analyst for Steinberg, were part of a group of friends who obtained inside information from Dell and Nvidia employees. Adondakis testified that he passed his tips to Chiasson, while Tortora said he gave his information to Newman.
Steinberg, 40, who was put on leave in September after it emerged that prosecutors identified him in court papers as an unindicted co-conspirator in the case, has worked at Steven A. Cohen’s SAC Capital for 15 years, the longest tenure of the six people who have been tied to the insider-trading probe while employed at the $14 billion hedge fund.
Horvath, who was set to go to trial with Newman and Chiasson, pleaded guilty Sept. 28 to securities fraud and conspiracy, telling Sullivan he passed nonpublic information about Nvidia to his portfolio manager. While he is cooperating with the U.S., he didn’t name Steinberg during his guilty plea or testify at the trial of Newman and Chiasson.
Jonathan Gasthalter, a spokesman for Stamford, Connecticut- based SAC, and Barry Berke, a lawyer for Steinberg, declined to comment on yesterday’s ruling.
Ganek started Level Global in 2003 with Chiasson, an analyst he met at SAC Capital. He’s a New York native whose father, Howard Ganek, was a partner at money-management firm Neuberger Berman and a well-known philanthropist.
“This was a tactical skirmish between the defense and prosecution over the submission of evidence in a case that I’m not a party to,” David Ganek said in a statement. “The key government witness, a former employee who I fired for violating our policies, testified multiple times that I didn’t know he was trafficking in insider information. The government’s decision not to bring any charges against me vindicates my position.”
Ganek’s attorney, John Carroll, called the ruling “one- sided,” as his client isn’t a party to the case.
“Both the U.S. attorney and the SEC have been investigating this case for two years and neither has found reason to charge my client,” Carroll said in a phone interview.
Ganek is currently investing his own money through his firm, Apocalypse 22 LLC in New York, which has about half a dozen employees, according to his spokesman, Davidson Goldin.
Chiasson’s lawyer, Greg Morvillo, argued yesterday that prosecutors failed to prove Ganek was a knowing member of the conspiracy because Adondakis, a key government witness, testified that he never told Ganek the source of his information.
The judge cited an e-mail in which Chiasson informed Ganek about a “check” Adondakis had sent him.
“Ganek is expressing awareness of Adondakis’s Dell contact,” Sullivan said, referring to the exchange. “Statements made by Ganek and his conversations during this time do suggest that he understands Adondakis is not just any analyst crunching numbers.”
Steve Fishbein, a lawyer for Newman, said there was no evidence before the jury showing Steinberg was a knowing member of the insider-trading scheme or knew the information he was receiving from Horvath had been illegally obtained.
Sullivan read aloud an e-mail from Horvath to Steinberg that mentions “JT,” who prosecutors say is Jesse Tortora.
“P.S. Keep the Dell stuff, especially on the down low,” Horvath said in the e-mail, “because JT asked me specifically to be extra sensitive with this information.”
Assistant U.S. Attorney Antonia Apps said in court yesterday that Steinberg took a short position in Dell stock, betting that it would drop, “in a matter of minutes” after receiving Horvath’s message.
“Why would you need to keep this on the ‘down low’ if this stuff is from investor relations?” Sullivan asked. The judge has instructed jurors in the Newman and Chiasson trial to return to court on Dec. 10.
The case is U.S. v. Newman, 12-00121, U.S. District Court, Southern District of New York (Manhattan).