Diamondback Capital Gets SEC Refund Following Level Global Winby and
Failed hedge fund to get part of $9 million penalty back
Judge ordered SEC earlier to pay back Level Global's penalty
Government regulators don’t usually pay back penalties they impose, but the U.S. Securities and Exchange Commission is now sending out a refund check to a second hedge fund caught up in a crackdown on insider trading.
Diamondback Capital Management LLC will get back all or part of the more than $9 million it paid to settle civil and criminal charges stemming from the insider trading probe that brought down at least five hedge funds.
The penalty reversals follow a New York federal appeals court ruling that threw out insider trading convictions of former Diamondback fund manager Todd Newman and Anthony Chiasson, co-founder of Level Global Investors LP. The U.S. Supreme Court declined to take the case on appeal.
In an order dated Jan. 29, U.S. District Judge Shira Scheindlin ruled that the judgment against Diamondback be vacated.
"We are pleased to close this matter with the SEC," Steve Bruce, an external spokesman for Diamondback, said in an interview.
Diamondback, which was based in Stamford, Connecticut, sought the judicial reversal on Jan. 28, just days after the same federal judge ordered the SEC to refund $21.5 million to Level Global, which was sued by the SEC as part of the same insider-trading case as Diamondback. The hedge fund cited the appeals court’s December 2014 decision overturning Newman and Chiasson’s criminal convictions.
The SEC told the judge it wasn’t opposed to Diamondback’s request.
$9 Million Deal
Diamondback originally agreed to pay the penalties to end a criminal investigation by Manhattan U.S. Attorney Preet Bharara and a regulatory probe by the SEC. As part of the $9 million deal, Diamondback obtained a non-prosecution agreement in January 2012 just as the government was announcing the criminal charges against Newman and Chiasson.
The hedge fund agreed to give up more than $6 million in what the SEC said at the time were ill-gotten gains related to insider trading, as well as a $3 million civil penalty.
Diamondback continued operating until December 2012, about 10 months after Newman and Chiasson were charged, while Level Global closed in February 2011.
The appeals court decision overturning Newman and Chiasson’s cases also upended the convictions of another 12 people. Since then, five others convicted of insider trading, including former Goldman Sachs Group Inc. director Rajat Gupta, have sought new reviews of their cases.
The U.S. Supreme Court agreed last month to hear the appeal of another insider-trading case which contradicts the Newman decision.
The SEC case is SEC v. Adondakis, 12-CV-00409, U.S. District Court, Southern District of New York (Manhattan).