By Nate Raymond
NEW YORK, Dec 17 (Reuters) - Two former hedge fund managers
were convicted on Monday of illegal trading in Dell Inc stock
based on secret information supplied by research analysts, the
latest in a string of Wall Street insider-trading convictions.
A federal jury in Manhattan found Todd Newman, a former
portfolio manager at Diamondback Capital Management, and Anthony
Chiasson, co-founder of Level Global Investors, guilty on all
counts of conspiracy to commit securities fraud and securities
"Like scores of privileged professionals before them, Newman
and Chiasson are finding out the hard way that the opportunity
cost of gaining an illegal edge in the market is the loss of
one's liberty," U.S. Attorney Preet Bharara said after the
The two men were charged in January as part of a sweep
called "Operation Perfect Hedge" by the Federal Bureau of
Investigation. A third defendant in the case, Jon Horvath, a
former analyst at a division of hedge fund titan SAC Capital,
pleaded guilty to charges related to insider trading before the
"We're going to certainly appeal," Reid Weingarten, a lawyer
for Chiasson, said after Monday's verdict, said in the court
hall after two full days of deliberations by a jury.
The case helped highlight how a group of fund managers and
analysts with ties to billionaire Steven Cohen's SAC Capital
have been pursued over insider trading. A top deputy of Cohen's,
Michael Steinberg, is an unindicted co-conspirator in the case.
Last month, in a different case, federal prosecutors charged
Mathew Martoma, a former employee at a SAC Capital division,
with helping Cohen's firm avoid losses and reap profits of $276
Prosecutors have not accused Cohen of wrongdoing, and after
Martoma's arrest SAC said it was confident that both Cohen and
the firm "have acted appropriately." The U.S. Securities and
Exchange Commission has notified the hedge fund that the agency
was considering filing civil charges against it, according to a
disclosure SAC made recently to investors.
The two managers were accused of using confidential
information in trades of Dell stock ahead of the computer
maker's earnings reports for the first and second quarters of
2008. Prosecutors alleged that Chiasson earned $57 million on
those trades while Newman netted $3.8 million.
Both were also accused of illegally trading in chipmaker
Nvidia Corp. Chiasson was accused of earning $10
million in illegal profits on trades ahead of Nvidia's May 2009
results. Prosecutors offered evidence at trial that Newman had
$78,000 in gains on Nvidia.
Prosecutors said the bets were made based on secret
information obtained by a group of analysts who formed a
"corrupt network" that swapped non-public information obtained
from themselves and others.
But defense lawyers contended that neither Newman nor
Chiasson knew the information was secret because the analysts
made it appear their stock recommendations were legitimate.
Several analysts, including former Diamondback analyst Jesse
Tortora and former Level Global analyst Spyridon Adondakis,
pleaded guilty. Both Tortora and Adondakis, who pleaded guilty
in January, testified on behalf of the government.
The government's wide-ranging investigation devastated
Newman's and Chiasson's hedge funds. Level Global was closed in
2011 following an FBI raid. Diamondback told its clients on Dec.
6 it planned to close.
Since August 2009, federal prosecutors in New York have
charged 75 people with insider trading and secured convictions
against 71 of them.
The case is US v. Todd Newman et al, U.S. District Court for
the Southern District of New York, No. 12-cr-121.
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