FBI: “Manhattan U.S. Attorney and FBI Assistant Director in Charge Announce Insider Trading Charges Against Four SAC Capital Management Companies and SAC Portfolio Manager”

July 25, 2013

The Federal Bureau of Investigation (FBI) on July 25, 2013 released the following:

SAC Management Companies Allegedly Engaged in Decade-Long Insider Trading Scheme on a Scale Without Known Precedent in Hedge Fund Industry; SAC Portfolio Manager Responsible for $1.25 Billion “Special Situations” Fund Has Pled Guilty to Insider Trading

Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director in Charge of the New York Office of the Federal Bureau of Investigation (FBI), announced today the unsealing of insider trading charges against four companies—S.A.C. CAPITAL ADVISORS, L.P. (SAC Capital LP), S.A.C. CAPITAL ADVISORS, LLC (SAC Capital LLC), CR INTRINSIC INVESTORS, LLC (CR Intrinsic), and SIGMA CAPITAL MANAGEMENT, LLC (Sigma Capital); (collectively the SAC Companies). The SAC Companies are responsible for the management of a group of affiliated hedge funds (collectively the SAC Hedge Fund or SAC). Charges were also unsealed today against RICHARD LEE, a portfolio manager employed by SAC Capital LP, who focused on “special situations” like mergers and acquisitions, private equity buy-outs, and corporate restructurings in publicly traded companies across various industry sectors. LEE pled guilty on July 23, 2013, before U.S. District Judge Paul G. Gardephe, to conspiracy and securities fraud charges in connection with his work at SAC Capital LP.

The SAC Companies are charged with criminal responsibility for insider trading offenses. These alleged offenses were committed by numerous employees, occurred over the span of more than a decade, and involved the securities of more than 20 publicly-traded companies across multiple sectors of the economy. It is charged that the acts of these employees were made possible by institutional practices that encouraged the widespread solicitation and use of material, non-public information (Inside Information). This activity allegedly resulted in hundreds of millions of dollars in illegal profits and avoided losses at the expense of members of the investing public. The SAC Companies are expected to be arraigned on the charges on tomorrow at 10:00 a.m. before U.S. District Judge Laura Taylor Swain.

Manhattan U.S. Attorney Preet Bharara said: “A company reaps what it sows, and as alleged, SAC seeded itself with corrupt traders, empowered to engage in criminal acts by a culture that looked the other way despite red flags all around. SAC deliberately encouraged the no-holds-barred pursuit of an ‘edge’ that literally carried it over the edge into corporate criminality. Companies, like individuals, need to be held to account and need to be deterred from becoming dens of corruption. To all those who run companies and value their enterprises, but pay attention only to the money their employees make and not how they make it, today’s indictment hopefully gets your attention.”

FBI Assistant Director in Charge George Venizelos said: “Our aim all along has been to root out the wrongdoers and send a message to anyone else inclined to break the law. If your information ‘edge’ is inside information, you can’t trade on it.”

According to the allegations in the five-count indictment and the criminal information to which LEE pled guilty, both of which were unsealed today in Manhattan federal court:

The SAC Hedge Fund operated as a collection of dozens of individual trading portfolios that covered nearly every trading sector of the economy. Each portfolio was headed up by a portfolio manager (PM), and supported by one or more research analysts (RAs). SAC PMs had substantial discretion in managing the investments in their own portfolios, and were required by the SAC Companies to share the investment recommendations in which they had the greatest confidence with the owner of the SAC Companies (the SAC Owner). The SAC Owner managed the largest trading portfolio at SAC.

From 1999 through at least 2010, numerous employees of the SAC Companies obtained and traded on Inside Information, or recommended trades based on such information to SAC PMs or the SAC Owner. To date, eight SAC Company PMs and RAs have been charged and/or convicted in insider trading cases involving the SAC Hedge Fund, including LEE, who was charged and pled guilty earlier this week.

The systematic insider trading engaged in by SAC PMs and RAs was the predictable and foreseeable result of an institutional failure. The SAC business culture encouraged and tolerated the relentless pursuit of an information “edge,” with no meaningful commitment to ensuring that such an “edge” came from legitimate research and not Inside Information.

As charged in the indictment, these institutional failings fell into three main categories:

First, the SAC Companies focused on recruiting SAC PMs and SAC RAs who had proven networks of public company contacts. The SAC Companies, however, did not make any corresponding effort to ensure that prospective SAC PMs and SAC RAs did not use these contacts to obtain illegal Inside Information. For example, in a November 16, 2008, e-mail forwarded to the SAC Owner, an SAC PM candidate in the industrial sector was recommended in part because he had “a house in the Hamptons with the CFO” of a Fortune 100 industrial sector company. In another instance, the SAC Companies hired LEE despite a warning to the SAC Owner from LEE’s prior employer, that LEE had been a member of an insider trading group at that hedge fund. LEE ultimately traded on Inside Information in the $1.25 billion “special situations” SAC portfolio he jointly managed with a second SAC PM.

Second, employees of the SAC Companies were financially rewarded for recommending to the SAC Owner “high conviction” trading ideas, in which the SAC PM had an “edge” over other investors. In many cases, the employees were not questioned when making trading recommendations that appeared to be based on Inside Information. On numerous occasions, the SAC Owner failed to follow up with SAC employees who were promoting trading sourced to an “edge” from a contact at a public company or with similar language suggesting potential insider trading. On one occasion, the SAC Owner participated in a discussion with his employees on the topic of confidential information the SAC employees had said that they learned during a paid consultation session from a clinical investigator for a drug trial. During the discussion with his employees, the SAC Owner, a sophisticated trader with over three decades of experience, never questioned whether the drug trial data constituted Inside Information. In addition, the SAC Owner and SAC Companies cultivated an environment that emphasized not discussing Inside Information openly rather than not seeking or trading on it in the first place.

Third, the SAC Companies employed limited compliance measures designed to detect or prevent insider trading by SAC PMs or SAC RAs. They failed to routinely monitor employee e-mails for indications of insider trading until late 2009, even though SAC’s head of compliance had recommended such monitoring to SAC management four years earlier. Indeed, despite numerous documented cases of insider trading at SAC—established by, among other things, guilty pleas of six former SAC PMs and RAs, each predicated upon repeated insider trading over substantial periods of time—SAC’s compliance department contemporaneously identified only a single instance of suspected insider trading by its employees. In that one case, the SAC Companies permitted those involved to continue working at SAC and failed to report the conduct to regulators or law enforcement.


In addition to the indictment, today the government filed a civil forfeiture action (the forfeiture complaint) in Manhattan federal court, seeking the forfeiture of assets held by investment funds to which the SAC Companies served as investment advisors, assets held by affiliated investment funds, and assets held by the SAC Companies themselves. The Forfeiture Complaint alleges that the SAC Companies engaged in money laundering by commingling the illegal profits from insider trading with other assets, using the profits to promote additional insider trading, and transferring the profits with the assistance of financial institutions.

The SAC Companies are charged together in count one of the indictment with wire fraud, and each of the four SAC Companies is charged separately in counts two through five with securities fraud. Each of the SAC Companies faces a maximum fine for the securities fraud charges of the greater of $25 million, or twice the gross gain or loss derived from the offense on each charge.

The criminal information unsealed today, to which RICHARD LEE pled guilty earlier this week, charges LEE with one count of conspiracy and one count of securities fraud in connection with insider trading between April 2009 through 2010, while he was employed by SAC Capital LP. LEE faces a maximum penalty of 20 years in prison for the securities fraud charge and five years in prison for the conspiracy charge. He also faces a maximum fine of $5 million for the securities fraud charge and $250,000 or twice the gross gain or loss derived from the offense on the conspiracy charge.

Of the seven other SAC Company portfolio managers and research analysts previously charged in insider trading cases involving the SAC Hedge Fund, five have pled guilty and await sentencing. They include:

  • Jon Horvath, who pled guilty on September 28, 2012;
  • Wes Wang, who pled guilty on July 13, 2012;
  • Donald Longueuil, who pled guilty on April 28, 2011;
  • Noah Freeman, who pled guilty on February 7, 2011; and
  • Richard Choo-Beng Lee, who pled guilty on October 13, 2009

Charges are still pending against the remaining two defendants previously charged in connection with SAC, Michael Steinberg and Mathew Martoma, who are presumed innocent unless and until proven guilty.

Mr. Bharara praised the efforts of the FBI and also thanked the U.S. Securities and Exchange Commission for its assistance in the investigation. He added that the investigation is continuing.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions, and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit http://www.StopFraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Arlo Devlin-Brown, Antonia M. Apps and John T. Zach are in charge of the prosecution, and Assistant U.S. Attorney Micah Smith is responsible for the forfeiture aspects of the case.

The charges contained in the indictment are merely accusations and the defendants are presumed innocent unless and until proven guilty.”


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


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.

U.S. charges 7 in Alleged $62 million Dell insider-trading case

January 19, 2012

Reuters on January 18, 2012 released the following:

“By Basil Katz and Grant McCool

(Reuters) – U.S. prosecutors charged seven people, described as a circle of friends who formed a criminal club, with running a $62 million insider trading scheme – the latest salvo in a years-long probe of suspicious trading at hedge funds.

The FBI in New York arrested four people on Wednesday and authorities announced previously secret charges against three others, making it one of the largest sweeps in the government’s investigation.

The seven charged worked for five different hedge funds and investment firms and reaped nearly $62 million in illegal profits on trades in Dell Inc, the prosecutors said. That is similar in magnitude to insider trading gains made by Raj Rajaratnam, the convicted founder of the Galleon Group hedge fund.

The charging document told “by now, a sadly familiar story,” Manhattan U.S. Attorney Preet Bharara said at a news conference.

“It describes a circle of friends who essentially formed a criminal club, whose purpose was profit and whose members regularly bartered lucrative inside information,” Bharara said.

Dubbed “Operation Perfect Hedge” by the FBI, the probe has examined suspected sharing of confidential business information with hedge fund managers and analysts. Rajaratnam was arrested as part of the investigation and is now serving an 11-year prison term following his conviction by jury trial last year.

The defendants arrested on Wednesday include Anthony Chiasson, who co-founded the Level Global Investors hedge fund. He turned himself in to the FBI in New York, an agency spokesman said. A U.S. magistrate judge released him on $5 million bail during a brief appearance in Manhattan federal court. Chiasson was not asked to enter a plea, but his lawyer, Gregory Morvillo, said his client denied the charges.

Todd Newman, who headed technology trading for hedge fund Diamondback Capital Management from Boston, was also arrested. Diamondback said in a letter to investors on Wednesday that it had been “proactively assisting” criminal prosecutors and the U.S. Securities and Exchange Commission in the case against Newman and another former employee, Jesse Tortora.

Chiasson and Newman are accused of illegally trading ahead of computer maker Dell’s earnings announcements for the first and second quarters of 2008, netting them profits, respectively, of $57 million and $3.8 million. Another defendant, Jon Horvath, is accused of making an illegal $1 million trade in Dell. Horvath was released on $750,000 bail after a court appearance in New York.

In a parallel civil action, the SEC said investment analyst Sandeep “Sandy” Goyal of Princeton, New Jersey, obtained Dell quarterly earnings information and other performance data from an insider at Dell in advance of earnings announcements in 2008.

Goyal tipped then Diamondback analyst Tortora of Pembroke Pines, Florida, with the inside information, and Tortora in turn tipped several others, leading to insider trades on behalf of Diamondback and Level Global hedge funds.

The fourth man arrested was California-based hedge fund manager Danny Kuo, officials said.

A Dell representative said the company had cooperated with authorities.

The SEC charged Diamondback Capital and Level Global as well as the individuals.


At Wednesday’s news conference, SEC Enforcement Division chief Robert Khuzami said the cases, along with Galleon and prosecutions of some so-called expert network firms, “reflect systemic dishonesty and exposes a deeply-embedded level of corruption.”

Newman had been placed on leave of absence from Diamondback in 2010 and subsequently was let go by that firm. Reuters in November reported the government’s interest in Newman.

Chiasson, Newman, Horvath and Kuo were charged in U.S. District Court in Manhattan with one count each of conspiracy to commit securities fraud and securities fraud, according to court documents.

Horvath, who was also arrested on Wednesday, is currently employed at Sigma Capital management, a unit of Steven Cohen’s $14 billion hedge fund SAC Capital, said a person familiar with the case who is not authorized to speak publicly. A spokesman for SAC Capital could not immediately be reached for comment.

Criminal charges also were made public against Goyal, Tortora and Spyridon Adondakis, a former junior analyst at Level Global who all previously pleaded guilty and are cooperating.

Lawyers for the three men could not be reached to comment.

Lawyers for Newman and Kuo also could not be reached to comment.

FBI Assistant Director-in-Charge Janice Fedarcyk said in a statement that the agency has arrested more than 60 people in the crackdown.

“This initiative is far from over,” she said. “If you are engaged in insider trading, what distinguishes you from the dozens who have been charged is not that you haven’t been caught; it’s that you haven’t been caught yet.”

The criminal complaint – signed by FBI agent David Makol, who was assigned to the Galleon investigation – accused Newman and Chiasson of using information obtained by the three cooperators and their network of sources at companies to make illegal trades.


Horvath’s arrest creates more headaches for fund industry titan Cohen, who has not been accused of wrongdoing.

Federal investigators have been looking into allegations of wrongful trading at SAC for more than four years, Reuters has previously reported, and Horvath’s arrest comes after criminal cases of others who have been tied to SAC.

Donald Longueuil, a one-time SAC portfolio manager, last year was sentenced to 2-1/2 years in prison for insider trading while Noah Freeman, another former SAC portfolio manager, cooperated with the government and pleaded guilty.

The investigations of insider trading began at least eight years ago and were first made public in October 2009. Most of the dozens of defendants charged have pleaded guilty or been convicted.

Many of the cases have been based at least in part on the use of government wiretaps authorized by federal judges. Four hedge fund firms – Level Global, Diamondback, Loch Capital Management and Barai Capital Management – were raided by the FBI in late 2010. Level Global, Loch and Barai have since folded.

Rajaratnam remains the best-known investor implicated in the probe. Rajat Gupta, a former chief of the consulting firm McKinsey & Co and director of both Goldman Sachs Group Inc and Procter & Gamble Co, has been charged with providing illegal tips to Rajaratnam. He is fighting those charges.

The case is U.S.A v. Todd Newman et al, U.S. District Court for the Southern District of New York, No. 12-0124.”


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.