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.”

————————————————————–

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

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

————————————————————–

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.

SEC: SYSTEMIC DISHONESTY

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.

MORE HEADACHES FOR SAC

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.


Three arrested, charged with Alleged Wall Street insider trading

January 18, 2012

ABC7 on January 18, 2012 released the following:

“NEW YORK (WABC) — Three financial executives are charged as part of an ongoing federal probe into insider trading on Wall Street.

John Hovarth was arrested in Manhattan Wednesday morning, and Todd Newman was taken into custody in Boston.

Police say 38-year-old Anthony Chiasson, who co-founded Level Global Investors in 2003, is expected to surrender.

He was not at home when FBI agents arrived at his Upper East Side apartment Wednesday.
All three will face insider trading charges.

FBI agents raided the Midtown offices of Level Global in November of 2010. Level Global managed about $4 billion in assets at the time of the raid, but it closed last year.

Todd Newman was a portfolio manager at hedge fund firm Diamondback Capital Management. Newman was placed on a leave of absence soon after the firm’s Stamford offices were raided by federal agents in Nov. 2010.

Newman managed a portfolio of technology stocks for Diamondback.

John Hovarth is an employee of Sigma Capital Management, a firm affiliated with the hedge fund SAC Capital Advisors.”

————————————————————–

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 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.