Federal “Criminal Indictment Is Expected for SAC Capital Advisors”

July 24, 2013

The New York Times on July 23, 2013 released the following:

“BY BEN PROTESS AND PETER LATTMAN

Federal authorities are poised to level a criminal indictment against SAC Capital Advisors, the hedge fund run by the billionaire Steven A. Cohen, capping a nearly decade-long insider trading investigation into one of Wall Street’s most prominent firms.

Prosecutors and the F.B.I. in Manhattan are expected to announce the charges in the coming days, according to people briefed on the matter, who spoke only on the condition of anonymity. The move, a rare aggressive action against a big company, could cripple SAC.

It is unclear whether SAC’s lawyers will try to settle at the last minute, though that is an unlikely option at this point. Mr. Cohen is not expected to be charged criminally, though authorities are still contemplating bringing charges against other employees at SAC.

While the legal deadline for filing some insider trading charges may have already passed, authorities are planning to navigate around that requirement by filing a broader criminal conspiracy case against SAC, these people said. As long as one of the trades cited in the case took place in the last five years – and some did – then the government has the power to sweep in older trades to highlight a continuing scheme.

Representatives for the government and SAC declined to comment.

The indictment would come on the heels of the Securities and Exchange Commission’s filing a civil action last week. It accused Mr. Cohen of failing to supervise employees suspected of insider trading. Those employees, Mathew Martoma and Michael S. Steinberg, had been charged with criminal wrongdoing.

In its order, the S.E.C. cited a 2008 e-mail forwarded to Mr. Cohen in which an SAC analyst explicitly stated that he had a “2nd hand read from someone at” the computer maker Dell, a source who provided financial information about the company before its earnings announcement. Minutes after receiving the e-mail, Mr. Cohen sold his entire position in Dell, the S.E.C. said.

In a 46-page document responding to the S.E.C.’s charges, Mr. Cohen’s lawyers said there was an innocent explanation for his not reacting to the suspicious e-mail: he did not read it.

“Cohen has no memory of having seen it and no witness will testify that they discussed it with him,” the lawyers said in the document, circulated internally at SAC and reviewed by The New York Times and referred to earlier in The Wall Street Journal.

Mr. Cohen, the lawyers argued, received an average of 1,000 e-mails each day in 2008. At the time, he apparently opened only 11 percent of the e-mails, though the lawyers did not disclose how they arrived at that figure.

To locate an incoming message, Mr. Cohen would have to look at the only one of his seven computer screens that displays e-mail, a monitor that happened to be “to the far left” of the others, his lawyers argued. Then he would have to “minimize one or two computer programs” to call up his Microsoft Outlook window, which was “reduced” so that Mr. Cohen could see, at most, only five messages at once.

While the document makes a strong case that Mr. Cohen was not knowingly trading on inside information, it is unclear whether it will rebut the S.E.C.’s claims that he did not prevent employees from doing so. The S.E.C. must show that Mr. Cohen did not “reasonably” supervise them.

Mr. Martoma, 39, and Mr. Steinberg, 40, have each pleaded not guilty to criminal insider trading charges and face separate trials in November.

Mr. Cohen’s civil case will play out before an administrative law judge at the S.E.C. rather than in a federal court. On Tuesday, Chief Judge Brenda P. Murray was assigned to the case, and a hearing was scheduled for Aug. 26.

The SAC document, people briefed on the matter said, was adapted from the lawyers’ response to the S.E.C.’s so-called Wells notice that warned of potential charges. It also outlined the arguments that SAC most likely presented in an effort to persuade the Justice Department not to bring a criminal indictment of the fund.

A criminal charge against SAC would likely serve as a death blow to the firm. SAC has already been hobbled by the government’s investigation, with investors in the fund pulling about $5 billion from the fund since the beginning of the year. But an indictment may pressure more investors to pull their money. It could also force SAC’s trading partners, which include nearly all of the largest Wall Street banks, like Goldman Sachs and Morgan Stanley, to suspend business with the firm.

Criminal charges against companies are extremely rare, and the government is reluctant to bring them given the potential collateral consequences. After the Justice Department indicted Enron’s accounting firm, Arthur Andersen, the firm was forced to close and 28,000 jobs were lost. SAC, which is based in Stamford, Conn., has about 1,000 employees.

Before bringing indictments against companies, federal prosecutors consider a number of factors when deciding to bring a case, including the pervasiveness of wrongdoing and the company’s level of cooperation in the investigation.

The Dell e-mails are expected to play a central role in the criminal case.

Even if he was a vigilant e-mail consumer, the lawyers say, Mr. Cohen could argue that the 2008 dispatch did not identify the source of the information about Dell, suggesting that it could have “lawfully” come from an authorized person at the company. The source, the lawyers note, did in fact turn out to be someone from the investor relations department, who has not been accused of any wrongdoing. The lawyers also note that the information in the e-mail “turned out to be wrong.”

Still, SAC made profits and avoided losses of $1.7 million. And once Dell released its earnings, Mr. Cohen sent an e-mail to Mr. Steinberg that said, “Nice job on Dell.”

Mr. Cohen sold his stake in Dell, the lawyers argue, with “good reason.” Mr. Cohen, they said, took the position based on the recommendation of a portfolio manager at SAC, whom people briefed on the matter identified as Gabe Plotkin. Minutes after Mr. Plotkin started selling, so did Mr. Cohen.”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

Federal Crimes – Detention Hearing

Federal Mail Fraud Crimes

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To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


An Insider Trading Case That Puts 2 Defendants at Odds

October 22, 2012

The New York Times on October 22, 2012 released the following:

“BY PETER J. HENNING

The insider trading charges against Anthony Chiasson, a co-founder of Level Global Investors, and Todd Newman, a former portfolio manager at Diamondback Capital Management, has put the two defendants at odds and may end up with one implicating the other as part of a defense strategy.

The government has accused the two men of receiving inside information through a “circle of friends” who exchanged information about technology companies. Mr. Chiasson is charged with reaping the largest profits for his hedge fund — about $57 million — by shorting Dell shares before a negative earnings announcement in August 2008. Mr. Newman is also accused of trading in Dell at the same time, but in much smaller amounts.

The information was passed around among a group of analysts who have pleaded guilty and agreed to cooperate in the case. Unlike other recent insider trading cases, however, the government does not have wiretaps or other consensual recordings to show how the tips made their way to Mr. Chiasson and Mr. Newman. Thus, the case will ride on whether analysts who worked for the two defendants are believable witnesses for the prosecution.

One quirk in the case is that there is no direct connection between Mr. Chiasson and Mr. Newman, although they are charged with being members of the same conspiracy. They worked at different firms, and the information reached them by different paths. Neither has much incentive to cooperate by putting up a united front.

For the case against Mr. Chiasson, the indictment accuses him of receiving the inside information from Spyridon Adondakis, an analyst at Level Global who pleaded guilty to passing inside information.

According to recent filings in the case, one way Mr. Chiasson’s lawyers plan to attack Mr. Adondakis’s credibility is by showing that he rarely shared confidential information with Mr. Chiasson. To that end, the defense plans to introduce nearly 1,000 e-mails sent by the analysts containing corporate information in which Mr. Chiasson was rarely listed as a recipient on the chain of messages.

Defense lawyers are likely to argue that Mr. Adondakis is someone who is an admitted criminal who never shared inside information with his boss. It was only after being caught did he offer up a prominent hedge fund manager in the hope of getting a significant reduction in his sentence.

The problem for Mr. Newman is that a few hundred of those e-mails included him as a recipient. Many were sent by an analyst at Diamondback who has also pleaded guilty to being Mr. Newman’s source of inside information.

To the extent the e-mails show Mr. Adondakis and others engaged in wrongdoing, they implicate Mr. Newman in the same criminal conduct. He could suffer some rather significant collateral damage if Mr. Chiasson argues that the e-mails are evidence of violations of the federal securities laws by Mr. Adondakis and his cohorts. The e-mails might hurt Mr. Newman’s case, but that is of little concern to Mr. Chiasson because it has become a situation of “every man for himself.”

To avoid this problem, Mr. Newman has asked a United States District Court judge, Richard J. Sullivan, to sever his case so that he is tried separately from Mr. Chiasson, or to bar his co-defendant from using the e-mails as part of his defense. Mr. Newman argues that the e-mails would not be admitted as evidence if he had a separate trial, and that they are potentially prejudicial to his case if the jury misuses them despite any instruction the judge might give to consider them only with regard to the charges against Mr. Chiasson.

Mr. Chiasson naturally opposes the proposal to preclude his lawyers from introducing the e-mails because they can support his position that Mr. Adondakis did not tip him by keeping secret any inside information he received.

Federal prosecutors have told the court they are sitting this one out by not taking a position in support of either defendant.

This is not the first time the defendants sought separate trials. In the summer, they asked Judge Sullivan to sever their cases because they were not part of a single conspiracy as alleged in the indictment but instead there were multiple agreements, sometimes called “hub and spoke” conspiracies. If they were not part of the same agreement, then it would be improper to try them together.

Judge Sullivan denied their motions without explanation, although the likely reason is that there is enough overlap in the evidence that a jury could find a single conspiracy and therefore it would be more efficient to conduct a joint trial.

With the trial scheduled to begin on Oct. 29, this latest motion presents a significant challenge. At this late date, ordering separate trials could mean substantial inconvenience for the government because prosecutors will have to reorganize their case to concentrate on only one defendant after preparing for a joint trial.

The court would face the prospect of two trials about the same basic set of facts, with some of the cooperating witnesses testifying twice about the same inside information. Any inconsistencies in their testimony will be fodder for cross-examination in the second case, potentially giving the defendant who is tried later an unfair advantage.

Keeping the defendants together for trial, however, means Judge Sullivan will have to figure out whether to admit the e-mail evidence that goes to the heart of Mr. Chiasson’s defense that he did not trade on inside information, or to keep it out to prevent the evidence from harming Mr. Newman’s case. If he does not grant Mr. Newman’s severance motion and the defendants are convicted, then one will have a significant issue to argue in an appeal.”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

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To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Doug Whitman Arrested by the FBI and Charged with Allegedly Using Inside Information to Trade on Google and Other Companies

February 10, 2012

Courthouse News Service on February 10, 2012 released the following:

“FBI Nabs Exec for Illegal Google Trades

By BARBARA LEONARD

MANHATTAN (CN) – A hedge fund manager was indicted Friday for earning $900,000 by allegedly using inside information to trade on Google and other companies.
Doug Whitman, 54, of Atherton, Calif., has been charged with two counts of conspiracy to commit securities fraud and two counts of securities fraud.
He allegedly made $900,000 in illegal profits as head portfolio manager for Whitman Capital by trading on Marvell Technology Group, Polycom and Google.
Karl Motey, an independent research consultant, shared confidential information about Marvell with Whitman between 2007 through about 2009, according to the indictment.
“In exchange for the Inside Information, Whitman paid Motey through a soft dollar payment arrangement between Whitman Capital and Motey’s consulting firm,” prosecutors said in a press release.
Roomy Khan, a hedge fund industry insider, gave Whitman inside information about Polycom Google between 2006 and 2007, according to the indictment.
Whitman could face 50 years in prison and at least $5 million in fines if convicted of all the charges against him.
Motey and Khan previously pleaded guilty to insider-trading charges and are awaiting sentencing. ”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

Federal Crimes – Detention Hearing

————————————————————–

To find additional federal criminal news, please read Federal Crimes Watch Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition and OFAC SDN Sanctions Removal.

The author of this blog is Douglas McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.