High-level executives charged in $78M insider-trading case
Greed on Wall Street set a record, authorities said as they unveiled a nearly $78 million insider-trading case that involved at least seven financial-industry professionals.
The Associated Press
NEW YORK — Greed on Wall Street set a record, authorities said Wednesday as they unveiled a nearly $78 million insider-trading case that involved at least seven financial-industry professionals and included a hedge fund co-founder who triggered a single trade that earned $53 million in profits, the largest lone transaction ever prosecuted in Manhattan.
"Today's charges illustrate something that should disturb all of us: They show that insider-trading activity in recent times has, indeed, been rampant and routine, and that this criminal behavior was known, encouraged and exploited by authority figures in several investment funds," U.S. Attorney Preet Bharara told a news conference.
He said nearly $62 million was earned through tips provided by a Dell employee to a former Dell worker who spread the information among his friends at at least five investment houses, including three hedge funds. He called it "a stunning portrait of organized corruption on a broad scale" and said it raised to 63 the number of people arrested in a government crackdown on insider trading. So far, there have been 56 convictions.
"Each wave of charges and arrests seems to produce leads to lead us to the next phase," said FBI Assistant Director-in-Charge Janice Fedarcyk.
She said the arrests were not the last in a 4-year-old probe dubbed "Operation Perfect Hedge."
The criminal complaint in U.S. District Court in Manhattan charged four of the men with conspiracy to commit securities fraud and securities fraud, among other charges.
Last month, hedge-fund founder Raj Rajaratnam began serving an 11-year prison term — the longest ever given in an insider trading case — for a scheme that prosecutors said produced as much as $75 million in profits on dozens of trades over a multiyear period.
Bharara said the case announced Wednesday was comparable to Rajaratnam's. He highlighted its size, saying the co-conspirators netted more than $61.8 million in illegal profits based on trades of a single stock from 2008 through 2009. The Securities and Exchange Commission (SEC) said the profits, combined with $15.7 million earned on trades involving Nvidia, reached nearly $78 million.
SEC enforcement director Robert Khuzami said it was disturbing that the case involved high-level executives at "some of the largest and most sophisticated hedge funds in the country."
The SEC said the case involved closely associated hedge-fund traders at Stamford, Conn.-based Diamondback Capital Management and Greenwich, Conn.-based Level Global Investors.
Anthony Chiasson, a co-founder at former hedge-fund group Level Global Investors, was among four men arrested Wednesday. He surrendered to the FBI in New York, where he lives.
Bail for Chiasson was set at $2.5 million after Assistant U.S. Attorney David Leibowitz told a magistrate judge at Chiasson's initial court appearance in Manhattan that the allegations against him were "staggering" and, if successfully proven, could result in a prison sentence of at least 10 years.
Leibowitz said the $53 million Chiasson earned for his hedge fund by shorting Dell stock on early word that its earnings would disappoint was the largest single illegal trade ever cited in a criminal case in federal court in Manhattan.
Chiasson's lawyer, Gregory Morvillo, said his client looked forward to defending himself.
Jon Horvath, an analyst at Sigma Capital Management, an affiliate of hedge fund SAC Capital Advisors in Manhattan, was arrested at his New York City home while Todd Newman, a hedge-fund portfolio manager, was arrested in Needham, Mass. Analyst Danny Kuo of San Marino, Calif. also was arrested.
Among those who have pleaded guilty to charges of conspiracy and securities fraud and are cooperating in the case was Sandeep Goyal, of Princeton, N.J., who worked from the summer of 2006 through May 2007 for Dell at its corporate headquarters in Round Rock, Texas, and obtained inside information from employees of Dell after he began working as an associate analyst for a global asset-management firm in Manhattan, court papers said.
Authorities said a hedge fund with $4 billion in assets in 2009 paid Goyal about $175,000 for providing insider information about Dell.
Another cooperator was identified as Jesse Tortora, of Pembroke Pines, Fla. The SEC said Goyal tipped Tortora, who then tipped several others, leading to insider trades on behalf of the Diamondback and Level Global hedge funds.
The third cooperator was identified as Spyridon (Sam) Adondakis, a Level Global analyst. The SEC said he tipped Chiasson, his manager. Adondakis also lived in New York City.
FBI Agent David Makol said in court papers that the government built its case through information provided by the three cooperators, court-authorized wiretaps, telephone records, trading records, electronic communications, documents provided by a cooperator and other documents obtained from two hedge funds.