'Corruption on grand scale' in insider trading case
CNNMoney By James O'Toole @CNNMoney January 18,
2012
NEW YORK (CNNMoney) -- Law enforcement officials announced charges
Wednesday against seven hedge fund and investment professionals in an insider
trading case they called "a stunning portrait of organized corruption on a
grand scale."
The men are alleged to have participated in a scheme that
generated more than $60 million in illegal profits based on trades of computer
maker Dell (DELL, Fortune 500)'s stock, according to a complaint unsealed
Wednesday.
Law enforcement officials compared the case in scale to that
of Raj Rajaratnam,
the former manager of the defunct hedge fund Galleon Group who was sentenced to
11 years in prison after netting $64 million in a long-running insider trading
scam.
"The charges, at their core, describe a circle of
corruption and a cycle of greed," Preet Bharara, the U.S. Attorney for the Southern
District of New York, said at a news conference.
He called the defendants "a circle of friends who
essentially formed a criminal club whose purpose was profit and whose members
regularly bartered lucrative inside information."
Insider selling on the rise
The case is believed to involve the largest illegal profit
ever from trades of a single stock, and includes "some of the largest and
most sophisticated hedge funds in the country," Securities and Exchange
Commission enforcement director Robert Khuzami said
at the news conference.
Among those named in the complaint, Anthony Chiasson, who co-founded the Level Global hedge fund in
2003, surrendered to law enforcement in New
York on Wednesday morning, a person familiar with the
investigation said.
Danny Kuo of the investment
manager Whittier Trust Co. was arrested in California, the person said. Todd
Newman, a former portfolio manager at Diamondback Capital, was arrested in
Boston, while Jon Horvath, who worked at Sigma Capital Management, was arrested
in New York.
Three other individuals named in the case have pleaded guilty and are
cooperating with investigators. Those men are Spyridon
Adondakis, who worked at Level Global, Jesse Tortora, who worked at Diamondback, and Sandeep
Goyal, who worked at Neuberger Berman.
In the complaint, the FBI alleges that in 2008 and 2009, the
defendants made more than $61.8 million in illegal profits on Dell stock based
on inside information. Level Global alone is alleged to have made more than $50
million based on an illegal tip ahead of Dell's August 2008 earnings
announcement.
The Securities and Exchange Commission announced related
civil charges against the seven men Wednesday based on insider trades of Dell
stock as well as of technology firm Nvidia Corp. (NVDA) Together, trades on these stocks netted $78 million in
illegal gains, the SEC said.
The SEC also brought charges against Diamondback and Level
Global.
Goyal, a former Dell employee, repeatedly obtained
inside information from a contact at the firm and passed it to his friend Tortora at Diamondback, according to the complaint. Tortora and Newman allegedly paid Goyal
at least $175,000 for this information, which was then disseminated to the
others named in the complaint.
Kuo, in addition to benefiting from the Dell tips, is
accused of passing inside information on Nvidia to
the other defendants.
SAC Capital Advisors, the parent of Sigma Capital Management,
did not immediately respond to a request for comment, nor did Whittier Trust. A spokeswoman for Diamondback
declined to comment.
Level Global reportedly announced plans to shut down last
year, according to news reports at the time, and a lawyer for the firm did not
immediately respond to a request for comment.
Horvath's lawyer, Steven Peikin,
said his client had done nothing wrong and called the charges "meritless." Lawyers for other defendants did not
respond to requests for comment.
Law enforcement officials are in the midst of a more-than-two-year crackdown on insider trading known as
"Operation Perfect Hedge" that has led to charges against more than
60 people.
http://money.cnn.com/2012/01/18/news/companies/insider_trading/